Optimal selec‎tion of Stock Portfolios Based on Financial Ratios an‎d ESG Factors by Using Multi-Criteria Decision-Making Methods

12/16/2025 12:00:00 AM

Recently, the increasing emphasis on sustainability an‎d corporate responsibility, alongside traditional financial indicators, has become a key requirement in investment decision-making. Integrating environmental, social, an‎d governance (ESG) criteria with financial ratios can provide a more comprehensive picture of a company’s performance an‎d enhance the quality of investors’ decisions. This study aims to selec‎t an optimal stock portfolio based on financial ratios an‎d ESG indicators on the Tehran Stock Exchange. Data were collected from 30 companies across three industries, including 11 key financial ratios an‎d 21 ESG indicators. The Analytic Hierarchy Process (AHP) was applied to determine the relative weights of the criteria, an‎d the VIKOR method, as one of the multi-criteria decision-making (MCDM) techniques, was employed to rank the stocks. Subsequently, to identify the optimal investment allocation an‎d achieve an efficient risk–return frontier, the classical Markowitz portfolio optimization model was utilized. The results revealed that the top ten ranked stocks achieved a desirable balance between return, risk, an‎d ESG performance. The optimization based on the Markowitz model indicated that the optimal allocation among these stocks could yield higher returns with lower volatility compared to ran‎dom combinations. The main contribution of this research lies in developing an integrated framework that combines financial an‎d ESG criteria in the portfolio selec‎tion process for the Iranian capital market—a framework that can promote sustainable investment practices an‎d support smarter financial decision-making.

انتخاب بهينه سبد سهام , نسبت‌هاي مالي , ESG , تصميم‌گيري چندمعياره

Optimal selec‎tion of Stock Portfolios , Financial Ratios , ESG , MCDM

Samira Yousefi

Seyed Jafar Sadjadi