JMF  Vol.2 No.1 , February 2012
Analytical Hierarchy Process and Goal Programming Approach for Asset Allocation
Abstract: Asset allocation in portfolio construction must simultaneously consider market conditions and investors’ specific preferences. Therefore, it is a multi-criteria decision that goes beyond the scope of the two-criteria, mean and variance of the portfolio returns, optimization method that traditionally prevails in the financial literature. This article suggests a procedure that makes integrated asset management possible, based on the Analytic Hierarchy Process combined with a mean variance and goal programming model. We illustrate this procedure with data from Canadian mutual funds over a total period of five years and three months, from September 2002 to November 2007. The results obtained are encouraging, as the portfolios constructed in this manner perform better than the S&P/TSX 60 index, which is the reference portfolio for the Canadian market.
Cite this paper: K. Sedzro, A. Marouane and T. Assogbavi, "Analytical Hierarchy Process and Goal Programming Approach for Asset Allocation," Journal of Mathematical Finance, Vol. 2 No. 1, 2012, pp. 96-104. doi: 10.4236/jmf.2012.21012.

[1]   G. P. Brinson, R. Hood and G. L. Beebower, “Determinants of Portfolio Performance,” Financial Analysts Journal, Vol. 42, No. 4, 1986, pp. 39-44. doi:10.2469/faj.v42.n4.39

[2]   G. P. Brinson, B. D. Singer and G. L. Beebower, “Determinants of Portfolio Performance II: An Update,” Financial Analysts Journal, Vol. 47, No. 3, 1991, pp. 40-48. doi:10.2469/faj.v47.n3.40

[3]   R. G. Ibboston and P. D. Kaplan, “Does Asset Allocation Policy Explain 40, 90, or 100 Percent of Performance?” Financial Analysts Journal, Vol. 56, No. 1, 2000, pp. 26- 33. doi:10.2469/faj.v56.n1.2327

[4]   W. F. Sharpe, “Integrated Asset Allocation,” Financial Analysts Journal, Vol. 43, No. 5, 1987, pp. 25-32. doi:10.2469/faj.v43.n5.25

[5]   E. M. Worzala and V. L. Ba-jtelsmit, “How Do Pension Fund Managers Really Make Asset Allocation Decision?” Benefits Quarterly, Vol. 15, No. 1, 1999, pp. 42-51.

[6]   T. L. Saaty, “The Analytic Hierarchy Process,” McGraw- Hill Book Company, New York, 1980.

[7]   J. J. Siegel, “Does It Pay Stock Investors to Forecast the Business Cycle?” Journal of Port-Folio Management, Vol. 18, No. 1, 1991, pp. 27-34. doi:10.3905/jpm.1991.27

[8]   J. Brocato and S. Steed, “Optimal Asset Allocation Over the Business Cycle,” The Financial Review, Vol. 33, No. 3, 1998, pp. 129-148. doi:10.1111/j.1540-6288.1998.tb01387.x

[9]   H. M. Marko-witz, “Portfolio Selection: Efficient Diversification of Invest-ments,” John Wiley & Sons, New York,