OPTIMAL PORTFOLIO FORMATION USING SINGLE INDEX MODEL OF LQ45 STOCKS IN INDONESIA STOCK EXCHANGE FOR 2021-2024 PERIOD

Authors

  • Ida Ayu Artha Widya Sari Faculty of Economics and Business, Udayana University, Indonesia
  • Ida Bagus Suadmaya Undiknas Graduate School, Universitas Pendidikan Nasional, Indonesia
  • I Gusti Agung Bagus Putra Prameswara Faculty of Economics and Business, Udayana University, Indonesia
  • I Gusti Ayu Agung Nararatna Mirah Nandini Faculty of Economics and Business, Udayana University, Indonesia
  • I Putu Agus Aditya Pramana Putra Faculty of Economics and Business, Udayana University, Indonesia
  • Ni Kadek Adi Astuti Faculty of Economics and Business, Udayana University, Indonesia
  • I Gusti Agung Rai Kristina Faculty of Economics and Business, Udayana University, Indonesia
  • Made Mas Ananda Adibaswara Faculty of Economics and Business, Udayana University, Indonesia
  • Sang Putu Krisnanda Adhitama Faculty of Economics and Business, Udayana University, Indonesia

Keywords:

Single Index Model, Optimal Portfolio, LQ45, Indonesia Stock Exchange

Abstract

The research determines the best portfolio composition using the Single Index Model (SIM) on stocks listed in the LQ45 index at the Indonesia Stock Exchange (IDX) for the 2021-2024 period. 45 stocks that are part of the LQ45 index were evaluated, based on their return, risk, and beta. The Single Index Model was used to choose stocks for the best portfolio based on their Excess Return to Beta (ERB) values compared to a cut-off point. The results show that from 45 stocks analyzed, 10 stocks formed the best portfolio with ADRO having the biggest allocation (75.37%), followed by ITMG (7.94%) and PGAS (4.34%). The mining sector was the biggest in the portfolio, showing it had the best risk-return during the study period. The optimal portfolio gave an expected yearly return of 64.84% with a risk level of 9.76%, and a Sharpe ratio of 6.13, showing very good risk-adjusted performance compared to the market. This research adds to the growing literature on portfolio optimization strategies in emerging markets, especially for Indonesian investors who want to maximize returns while managing investment risks in the IDX.

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Published

2025-10-15

Issue

Vol. 10 (2025): Tourism, Economy, and Technology: Building a Sustainable Business Ecosystem

Section

Articles