Applying Portfolio Selection: A Case of Indonesia Stock Exchange

Abstract

This study had three objectives. First, investigated whether Modern Portfolio Theory can be applied on the financial decisions in order to increase their wealth through investment activities. Second, examined the real behavior of each asset in terms of capital assets pricing models. Third, determined whether our portfolio is the best model. It is found that three different stocks listed in the Indonesia Stock Exchange have a positive relationship with market returns. The reactions of the investor regarding these stocks are not influenced by each other. Lastly, the minimum variance portfolio (MVP) point which represents the single portfolio with the lowest possible level of standard deviation, occurs when the expected return of portfolio is approximately 2.2 percent at a standard deviation of 8.8 percent.