ANALYSING RISK & RETURN PROFILES: A COMPARATIVE STUDY OF THE INDONESIAN STOCK MARKET AGAINST INTERNATIONAL BENCHMARKS

• Main Author: David Hamonangan, Marco
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/79705
• Institution: Institut Teknologi Bandung

The Indonesian stock market, also known as IDX, has emerged as a prominent player in the financial landscape of Southeast Asia. Its most attractive index ‘the LQ45’ has attracted the interest of international investors who regard it as a potential source of massive returns. The Stock market has grown exponentially due to the participation of foreign investors. Nevertheless, with the strong competition from other emerging markets and the high volatility that is currently happening in the stock market, the IDX may assume a threat of a reduction of foreign portfolio investment due to the more attractive competing stock market. Understanding the risk-return characteristics of the LQ45 in comparison to recognised benchmark indexes is crucial for making educated investment decisions. This study will conduct a comparative analysis of the risk-return attributes of the LQ45 in comparison to six well recognised benchmark indexes, specifically the S&P 500 Index, the Straits Times Index, the FTSE 100 Index, the Shanghai Stock Exchange Composite, the BSE Sensex, and the BOVESPA Index. The study employs several risk and return measures, such as standard deviation, coefficient of variation, and the Sharpe ratio, to assess the relative performance of the LQ45 and its implication to international portfolio managers that are looking to diversify investments to emerging markets. The findings in this study has shown that although Indonesia is an attractive investment destination, it is still trailing behind India in terms of risk adjusted returns. However, findings has shown that risk averse investors can stil benefit more when diversifying into the LQ45 due to a higher risk mitigation.