ANALYZING THE APPLICATION OF GREENBLATT’S MAGIC FORMULA STRATEGY IN INDONESIA STOCK EXCHANGE

• Main Author: Adisaputra, Rizal
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/64553
• Institution: Institut Teknologi Bandung

The stock market investors in Indonesia has been growing significantly in years. Until May 2020, the single investor identification (SID) numbers reach 2.8 million investors, or 13% growth from the end of 2019. Currently, the investors in stock market are growing by 8% from 2019 or 1.19 million investors according to the Single Investor Identification (SID) per May 2020. The growing of investor numbers indicates that the knowledge and education about stock market should grows as well. It makes the needs of investment strategy increase. However, one of the investment academics said that most of the investor nowadays has a bad return. It might be caused by the lack of the knowledge of investment strategy. There is one of the strategies called Greenblatt’s Magic Formula strategy that has been proven in terms of the returns by previous studies. However, those studies are conducted outside Indonesia stock market. The purpose of this research is to analyze the performance of Greenblatt’s Magic Formula strategy in Indonesia Stock Exchange. The Greenblatt’s Magic Formula strategy that consists of two valuation metrics which are return on capital (ROC) and earnings yield (EY) will be used in this research. The research uses the Kompas100 index which consists of 100 big capitalization and liquid companies to collect the data and the researcher uses monthly adjusted closing price of each stock. The portfolios are made by using audited annual financial statements and unaudited interim financial statements. Also, this research uses two different portfolio size by using equal weight and market capitalization weight portfolio. The portfolio performance will be analyzed by using the normality test and statistical hypothesis test with 0,05 significance. The findings of this research show that: (1) there is no significant portfolio return difference by using audited and unaudited financial statements; (2) there is no significant portfolio return difference by using equal weight portfolio and market capitalization weight portfolio; (3) Greenblatt’s Magic Formula Strategy cannot be used in every market condition and portfolio allocation weight since the return is below the benchmark, but with no significant difference. The findings of this research may help the investors in choosing the good stocks and provide insights about this investment strategy if they want to use this strategy.