Optimal Strategy for Building an lnvestment Portfolio Using Product Parameter Design

Abstract

For more than five decades, the Taguchi System of Quality Engineering (TSQE) has been applied around the world in the areas of new product development,process improvement, product design, and services improvement. This research applies TSQE to develop an optimal strategy to build investment portfolios. This paper begins with an outline of TSQE. There follows a discussion of the development of a suitable discriminant function to identify stable stocks. The need for an optimal strategy to build investment portfolios is then explained in the light of the basic tenets of financial engineering. A strategy is then proposed based on product parameter design; and portfolio returns are compared with market returns. Finally, the paper presents concluding remarks and suggestions for future work.