A multi-dimensional decision framework to support corporate bond investment

Victor LIAO*, Michael Tow Cheung

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

2 Citations (Scopus)

Abstract

This paper constructs a multi-dimensional decision framework to support investment in corporate bonds. The Analytic Hierarchy Process (AHP) is first customized to accommodate six fundamental criteria governing investor behaviour. It is then shown that, after pairwise comparison of criteria and asset alternatives at appropriate framework levels, a set of weights can be calculated to prioritize the different bonds and allocate wealth over a portfolio which is best in terms of judgmental conformity with the individual’s investment goal and investment criteria. Apart from the practical advantages following from ready operationalization and computation, our framework is analytically grounded on the Nobel Prize-winning paradigms of bounded rationality and rational expectations. In particular, an index can be obtained to test for sufficient decision consistency on the part of the bounded-rational individual, and a method is offered to rationally and operationally model changes in investor preferences, perceptions, and expectations under market dynamics and the impact of such changes on the demand for corporate bonds.

Original languageEnglish
Pages (from-to)161-170
Number of pages10
JournalJournal of Decision Systems
Volume21
Issue number2
DOIs
Publication statusPublished - Apr 2012

Scopus Subject Areas

  • Management Information Systems
  • Software

User-Defined Keywords

  • Analytic hierarchy process
  • Corporate bond investment
  • Multi-dimensional decision framework

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