The use of multi-objective fuzzy optimization method for value-based portfolio selection

This study aims to choose stocks of firms quoted in Borsa Istanbul using value investing strategy and to test the corresponding portfolios' short- and long-run performance in rising and falling markets. For this purpose, a two-step choice was performed and its efficiency was tested based on the joint use of multi-objective fuzzy optimization method and Markowitz Mean Variance Approach for stocks choice of portfolios where the former method concerns with value investing criteria and the latter approach deals with risks and returns. This study utilized the data of three distinctive periods, namely, 1996-2007, 2000-2011 and 2004-2015. The results of this study reveal that stocks choice regarding value investing is a profitable method for Borsa Istanbul as well as other developed markets. When the results of this study are periodically examined, value porfolios are found to be more profitable than market portfolios in rising markets, however, falling markets including crisis periods value portfolios are found to have less performance than market portfolios. Besides, a two-step stocks choice approach performed in this study was established as a practical method to determine the appropriate stocks with respect to ideal criteria among many stocks including both value investing criteria and risks and returns. Keywords: Value Investing, Portfolio Choice, Multi-Objective Fuzzy Optimization, Markowitz Mean Variance Approach