A new VIKOR-based in-sample-out-of-sample classifier with application in bankruptcy prediction

Nowadays, business analytics has become a common buzzword in a range of industries, as companies are increasingly aware of the importance of high quality predictions to guide their pro-active planning exercises. The financial industry is amongst those industries where predictive analytics techniques are widely used to predict both continuous and discrete variables. Conceptually, the prediction of discrete variables comes down to addressing sorting problems, classification problems, or clustering problems. The focus of this paper is on classification problems as they are the most relevant in risk-class prediction in the financial industry. The contribution of this paper lies in proposing a new classifier that performs both in-sampleandout-of-samplepredictions,wherein-samplepredictionsaredevisedwithanew VIKOR-based classifier and out-of-sample predictions are devised with a CBR-based classifier trained on the risk class predictions provided by the proposed VIKOR-based classifier. The performance of this new non-parametric classification framework is tested on a dataset of firms in predicting bankruptcy. Our findings conclude that the proposed new classifier can deliver a very high predictive performance, which makes it a real contender in industry applications in finance and investment.Publisher PDFPeer reviewe

Socially responsible investment: A multicriteria approach to portfolio selection combining ethical and financial objectives

In a context of Socially Responsible Investment (SRI), this paper deals with portfolio selection for investors interested in ethical policies. In the opportunity set there are ethical assets and other assets which are not characterized as ethical. Two goals are considered, the traditional financial goal in the classical utility theory under uncertainty and an ethical goal in the same utility framework. A new financial-ethical bi-criteria model is proposed with absolute risk aversion coefficients and targets depending on the investor's ethical profile. This approach is relevant as an increasing number of mutual funds are becoming interested in SRI strategies. From the proposed model, an actual case on green investment is developed. Concerning this case (without generalizing to other contexts), an analysis of the numerical results shows that efficient portfolios obtained by the traditional E-V model outperform the strong green portfolios in terms of expected return and risk, but this does not significantly occur with weak green investment. © 2011 Elsevier B.V. All rights reserved.Blanca Perez-Gladish and Mar Arenas-Parra wish to gratefully acknowledge financial support from the Spanish Ministry of Education, project MTM2007-67634. Thanks are given to three anonymous referees for their comments and suggestions.Ballestero Pareja, E.; Bravo Selles, M.; Perez-Gladish, B.; Arenas-Parra, M.; Pla Santamaría, D. (2012). Socially responsible investment: A multicriteria approach to portfolio selection combining ethical and financial objectives. European Journal of Operational Research. 216(2):487-494. doi:10.1016/j.ejor.2011.07.011487494216