THE STOCK SELECTION BASED ON THE NORMALIZED EXPECTED UTILITY- ENTROPY MEASURE OF R？SK AND DECISION MODEL

Making decisions under risky actions has an increasing importance in many scopes such as finance, economics and actuarial sciences. Different type of risk measures, which are developed to obtain information about risky decision problems, are used for decision analyze models such as decision of risky actions. In this study, we use the normalized EU-E and entropy measure of risk and the normalized EU-E and entropy decision model which was developed by Yang and Qui while making risky decisions. In the model, the measure of risky action is the weighted linear average of expected utility and entropy using a risk tradeoff factor. In this study we use Shannon entropy as an entropy measure and exponential utility function is used for the utility function. In the application part, stock selection is made by using the normalized EU-E and entropy decision model. We obtain the results for the different tradeoff factor values