Edirisinghe, N. C. P.; Zhang, X. Portfolio selection under DEA-based relative financial strength indicators: Case of US industries. (English) Zbl 1153.90454 J. Oper. Res. Soc. 59, No. 6, 842-856 (2008). Summary: Fundamental analysis is an approach for evaluating a firm for its investment-worthiness whereby the firm’s financial statements are subject to detailed investigation to predict future stock price performance. In this paper, we propose an approach to combine financial statement data using Data Envelopment Analysis to determine a relative financial strength (RFS) indicator. Such an indicator captures a firm’s fundamental strength or competitiveness in comparison to all other firms in the industry/market segment. By analysing the correlation of the RFS indicator with the historical stock price returns within the industry, a well-informed assessment can be made about considering the firm in an equity portfolio. We test the proposed indicator with firms from the technology sector, using various US industries and report correlation analyses. Our preliminary computations using RFS indicator-based stock selection within mean-variance portfolio optimization demonstrate the validity of the proposed approach. Cited in 7 Documents MSC: 90B50 Management decision making, including multiple objectives 91G10 Portfolio theory Keywords:data envelopment analysis; fundamental analysis of financial statements; portfolio selection and optimization; relative financial strength PDFBibTeX XMLCite \textit{N. C. P. Edirisinghe} and \textit{X. Zhang}, J. Oper. Res. Soc. 59, No. 6, 842--856 (2008; Zbl 1153.90454) Full Text: DOI