DEVELOPING A MODULAR PORTFOLIO SELECTION MODEL FOR SHORT-TERM AND LONG-TERM MARKET TRENDS AND MASS PSYCHOLOGY

In an effort to model stock markets, many researchers have developed portfolio selection models to maximise investor satisfaction. However, this field still needs more accurate and comprehensive models. Development of these models is difficult because of unpredictable economic, social, and political variables that affect stock market behaviour. In this paper, a new model with three modules for portfolio optimisation is presented. The first module derives the efficient frontier through a new approach; the second presents an intelligent mechanism for emitting trading signals; while the third module integrates the outputs of the first two modules. Some important features of the model in comparison with others are: 1) consideration of investors' emotions - the psychology of the market - that arises from the three above-mentioned factors; 2) significant loosening of simplifying assumptions about markets and stocks; and 3) greater sensitivity to new data. [PUBLICATION ABSTRACT]