CREATING A SUPERIOR PORTFOLIO USING MODERN PORTFOLIO THEORY: CASE STUDY OF INDONESIAN LQ45

• Main Author: Elizandra Azdan, Karisha
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/64703
• Institution: Institut Teknologi Bandung

Investing, one among the sources of financial gain is currently becoming crucial in the public eyes. The right decision of investment could possibly lead to a significantly higher income than keeping money aside. As technology and theories about capital market are incessantly developed, investing in a combination of assets has become a trend and most of the time does not necessarily need to be actively managed. One of the examples is Exchange Traded Funds (ETFs) which is the combination of assets that in the last decades has had a significant growth. Many of ETFs are created to imitate particular stock market index, with mainly institutional and big-funded investors who are the causes of growth. Unfortunately, for some small investments, it might not a good idea to trade in the market. In this paper, the author will make a new portfolio consists of one fourth the stocks of LQ45 stock market index. The portfolio itself is expectedly can outperform the market given fewer numbers of stocks with possible less efforts for investors. There will be four groups representing alternatives based on the performance of the historical returns and one will be chosen as the group the investors should rely on. By using solver analysis and actual performance comparison, the result shows that the last group is able to outperform the market. This group consists of the stocks in LQ45 which have the worst average returns in the previous period and consistently perform better in the following period. The Sharpe ratio value of the new portfolio turns out to be bigger than LQ45 in the last five years.