Evaluating the performances of over-the-counter companies in developing countries using a stochastic dominance criterion and a PSO-ANN hybrid optimization model

Nasseri, A; Jamshidi, S; Yazdifar, H; Percy, DF; Alam, MA

Abstract

With suitable optimization criteria, hybrid models have proven to be efficient for preparing portfolios in capital markets of developed countries. This study adapts and investigates these methods for a developing country, so providing a novel approach to the application of banking and finance. Our specific objectives are to employ a stochastic dominance criterion to evaluate the performances of over-the-counter (OTC) companies in a developing country and to analyse them with a hybrid model involving particle swarm optimization and artificial neural networks.

In order to achieve these aims, we conduct a case study of OTC companies in Iran. Weekly and daily returns of 36 companies listed in this market are calculated for one year during 2014-2015. The hybrid model is particularly interesting and our results identify first, second and third-order stochastic dominances among these companies. Our chosen model uses the best performing combination of activation functions in our analysis, corresponding to TPT where T represents hyperbolic tangent transfers and P represents linear transfers.

Our portfolios are based on the shares of companies ranked with respect to the stochastic dominance criterion. Considering the minimum and maximum numbers of shares to be 2 and 10 for each portfolio, an eight-share portfolio is determined to be optimal. Compared with the index of Iran OTC during the research period of this study, our selected portfolio achieves a significantly better performance. Moreover, the methods used in this analysis are shown to be as efficient as they were in the capital markets of developed countries.

• Journal Article Type: Article
• Acceptance Date: Feb 1, 2020
• Online Publication Date: Apr 28, 2020
• Publication Date: Apr 28, 2020
• Deposit Date: Feb 4, 2020
• Publicly Available Date: May 4, 2020
• Journal: Journal of Applied Accounting Research
• Print ISSN: 0967-5426
• Publisher: Emerald
• Volume: 21
• Issue: 3
• Pages: 563-582
• DOI: https://doi.org/10.1108/JAAR-09-2019-0137
• Publisher URL: https://doi.org/10.1108/JAAR-09-2019-0137
• Related Public URLs: https://www.emerald.com/insight/publication/issn/0967-5426