Portfolio return using Black-litterman single view model with ARMA-GARCH and Treynor Black model

Abstract

Establishing an optimal portfolio is a method that can help investors to minimize risk and optimize profits. Some models for optimal portfolio include Black-litterman Model and Treynor Black Model. The Black-litterman Model combines the elements of historical data and views of investors to form a new prediction of the portfolio as the basis for the preparation of weighted asset models. Predicted views in this study using time series ARMA-GARCH. The stock return data mostly have high volatility causing heteroscedasticity problems, so the GARCH model is chosen to overcome the problem. Treynor Black Model is active and passive portfolio. An active portfolio is that investors allocate their investment funds to individual securities in the capital market, while passive portfolios are investors allocating their investment funds to the stock market indices. In this research we will use Treynor-Black Model with active portfolio, so that investors can choose stock according to their allocation of funds. The purpose of this research is to form the weight of Black-litterman model portfolio with a single view investor using ARMA-GARCH and compare the profit result obtained from the formation of portfolio Black-litterman Model and Treynor-Black Model. The selected shares are PT. Bank BCA (BBCA), PT. Gudang Garam (GGRM), and PT. Waskita Karya (WSKT).