Sharia-compliant stock preference using similarity-based Fuzzy Grey Relational Analysis

Abstract

The introduction of Sharia-compliant stocks at Bursa Malaysia can be considered as a type of socially responsible investing mechanism, especially for Muslim investors. An increase in the public interest in stock investment has led to the introduction of methods of categorizing and selecting preferred stocks effectively. Fuzzy decision-making methods have also become an important approach due to the nature of ambiguous and imprecise available data in the decision-making process. Nevertheless, some simplifications are inevitable to reduce the complexity of the problem, and consequently, loss of vital information may occur. In this paper, a similarity-based fuzzy grey relational analysis (FGRA) is proposed to rank selected Sharia-compliant stocks. An element of similarity measure is introduced in the original FGRA to reduce the loss of information in the computation when the distance between fuzzy numbers is utilized. The similarity measure can capture more information compared to distance measure since, in the computation, additional geometrical features of fuzzy numbers will be incorporated. An improvised procedure of FGRA is offered and implemented to rank selected Sharia-compliant stocks based on some fundamental analysis criteria. A comparison is then made on the preference obtained by the proposed procedure with the original FGRA.