PORTFOLIO REBALANCING USING MARKOWITZ MODEL WITH SEQUENTIAL QUADRATIC PROGRAMMING

• Main Author: Widiarto, Azka
• Format: Theses
• Language: Indonesia
• Subjects: Manajemen umum
• Online Access: https://digilib.itb.ac.id/gdl/view/70766
• Institution: Institut Teknologi Bandung

To overcome inflation, investing is needed to maintain purchasing power but there are so many investment's options that comes with a variety of risk and returns. A portfolio with a high return and high risk means that the investor may win big, but they must be prepared to also lose as big as well. The goal is to have a portfolio with promise of a high returns but also paired with an insignificant risk. Most Indonesian investors are mostly consisting of millennials. Most young investor has increased risk tolerance, 23% higher than the total population. Fifty-eight percent of young investor are using the hype on social media, and encouragement from other people to guide their investment decisions. In Malang, Indonesia, young investors are still heavily influenced by psychological considerations and tend to rely on their feelings and emotions. To solve this problem, IDX30 index for the stock that is going to be put in the portfolio. P/E ratio is going to be used to separate the high-performance stock and using Markowitz model and solved with sequential quadratic programming to determine the weight or proportion of each stock in the portfolio. The result of this final project is an optimum portfolio, a portfolio with a minimum risk possible but still meets the required return. The return of Markowitz portfolio that is rebalanced quarterly is inferior compared with the monthly and semi-annually rebalancing. Monthly and quarterly rebalancing scenario have negative Sharpe ratio which is an unacceptable investment. The semi-annually rebalanced scenario is a promising investment strategy for those who seeks high portfolio return. In conclusion, Markowitz model can be used by the investors to construct a portfolio that meets the desired rate of returns with the lowest portfolio risk. P/E ratio have a positive correlation with stock price return especially in IDX30 index. Markowitz portfolio model needs to be rebalanced twice a year or semi-annually to still meets the initial criteria.