THE USE OF TOPSIS MODEL IN RANKING AND DETACHING OF GROWTH AND VALUE STOCKS, AND COMPARING THEIR RETURNS IN TEHRAN SECURITIES EXCHANGE

Abstract

Finding a proper method for selecting the best stock or portfolio among the mass of stock on the market is one of the major concerns to investors. Therefore, it is important for the investors what kind of stock to invest in, to obtain desirable Returns. In this study, which
encompasses a time span from 2007 to 2011 (twenty three-months periods), 120 companies were selected as sample. Then, based on Hagen’s six-factor model together with P/E criterion, and using Shannon’s entropy and TOPSIS technique, the samples were weighted
and ranked and finally, growth stocks were distinguished from value stocks. Consequently, every three months, a pair of growth and value portfolio was constructed and in the next three-month span, their returns were computed and their average returns were compared. The results regarding the weight of each one of the seven criteria indicated that in 2007 (4 initial periods), the price to book value index, and price to sales index had the utmost importance among all indexes. In other periods, price to sales index won the highest importance, which indicates the importance of this index among others. Finally, through the test of comparison of means (t-test), it was concluded that, during 20 periods of experiment, the average returns of growth portfolios was higher than that of value portfolios.