Department of Accounting, 2003

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Making an investment, whatever the type that becomes the main element of investor?s consideration is the rate of return and the rate of risk. By making diversification, investor may reduces the rate of risk and at the same time optimizes the rate of expected return. Diversification can be done by forming composition of portfolio. To get the optimal portfolio, investor may uses some method of portfolio analysis . One of those analysis methods is by using Single index model.
The purpose that researcher want to achieve is prooving the importance of stocks analysis and stocks selection in forming portfolio of stocks to make investment decision. This research uses 25 stocks which are included in LQ - 45 (45 most active stocks) as the sample. The researcher has assumption that investor will choose the active stocks to do investment. Besides, the researcher?s reason in taking sample because during 4 periods ( 2 years), those 25 stocks never to be thrown out from the list of LQ - 45 (year 1999 to year 2001).
For getting stocks that will be enrolled into composition of portfolio, this research uses Single Index Model as the method. The stocks which are enrolled into composition of optimal portfolio are the stocks with good performance. The assessment of stocks performance is determined by using ERB (Excess Return to Beta) ratio. ERB (Excess Return to Beta) is difference between the rate of expected return and the free risk asset return that measured by beta. Stocks' beta is acquired through regression analysis by using computer program (SPSS 7.5 for Windows). To get ERB that is categorized into height, it is necessary to calculaate the cut - off point (C*). By calculating the cut - off point (C*), will be found the stocks with high ERB, that its also have optimal rate of return and minimal rate of risk. By using Single Index Model also can decide the proportion of fund that will be invested.
From the analysis that researcher has already done to 25 stocks, there are 9 stocks that included in composition of optimal portfolio. Whereas, only 4 stocks included in most optimal and efficient composition of portfolio, they are stocks of Tempo Scan Pasific, stocks of HM Sampoerna, stocks of Astra Otoparts, and stocks of Ramayana Agro Lestari Sentosa. The stocks of Astra Otoparts get the highest proportion of investment (47%), next followed by stocks of Tempo Scan Pasific (22%), stocks of Ramayana Agro Lestari Sentosa (21%) and finally stocks of HM Sampoerna (10%).




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