BUY-AND-HOLD INVESTMENT STRATEGY IN INDONESIA’S STOCK MARKET

• Main Author: Mohammed Dhanaguna, Ezra
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/68157
• Institution: Institut Teknologi Bandung

Indonesia’s Stock Exchange have been growing in number of Single Investor Identification (SID), but Indonesia’s financial literacy rate is lower than the global average. Furthermore, all forms of the efficient market hypothesis (EMH) would suggest that the market prices reflects all historical data, and it would be almost impossible to obtain superior returns than the market. Additionally, data shows Indonesia’s sandwich generation which means that there is an increase in people who must give financial support to both the elderly and their children. Thus, this paper examines the effectiveness of a buy-and-hold investment strategy (stocks only) in Indonesia, which does theoretically does not need constant portfolio rebalancing. Stocks considered for investment decision is the constituents of LQ45 index, which is 45 of the most liquid large-cap publicly listed companies in Indonesia. The author(s) have optimized the LQ45 index with the help of MATLAB software with 2 approaches to create 2 different portfolios. One approach is to optimize the portfolio by using a target return, and the second one with a target risk. Portfolio’s performance is evaluated with 3 different measures: Sharpe Ratio, Treynor’s Measure, and Jensen’s Alpha. The results obtained were that both portfolios achieved significantly inferior returns compared to the market and the benchmark portfolio, which is the LQ45 index. The findings indicate that it is crucial for new investors to take caution in their investment strategy and conduct periodic rebalancing and reconstitution of assets invested in the portfolio to achieve a desired return.