Abstract
This paper examines how to build a portfolio and assess the impact of the COVID-19 on portfolio performance using the Sharpe single index model. The research sample consists of ten high market capitalization stocks representing five price fractions of the population listed stocks on the Indonesia Stock Exchange during the COVID-19 outbreak from March 1 to May 31, 2020. The results show that there are four stocks that are included in the portfolio formation, namely CASA with a proportion of 50%, BNLI with a proportion of 26 %, UNVR with a proportion of 15%, and HMSP with a proportion of 9%. Based on portfolio performance testing using the Sharpe single index model, it is known that the portfolio during the COVID-19 has a negative Sharpe ratio, meaning that portfolio performance is underperforming. The findings provide evidence that COVID-19 has had a negative impact on the stock market so that many investors have suffered losses on their portfolios. The implications of findings are that investors must evaluate portfolio performance and restructure the formation of new portfolios by considering the COVID-19 pandemic outbreak as a systematic risk factor that can determine the expected returns.
Highlights
The development of the global economy shows many opportunities to invest in the capital market, which provides opportunities for international investors to benefit from obtaining higher returns with lower risk
This study focuses on portfolio formation and evaluation of high-capitalization stocks by taking into account the optimal rate of return with a certain level of risk using the Sharpe single index model as the most commonly used method for the expected return risk trade-off to measure the impact of the COVID-19 on the Indonesian Stock Market (JCI) as a financial market that has been affected by the COVID-19, as indicated by a drastic decline in the JCI
The analysis of the best portfolio formation begins by selecting 10 high-capitalization stocks representing five price fractions. The determination of these high-capitalization stocks is assuming that the stocks have high profitability so that they can survive in times of crisis
Summary
The development of the global economy shows many opportunities to invest in the capital market, which provides opportunities for international investors to benefit from obtaining higher returns with lower risk. This study focuses on portfolio formation and evaluation of high-capitalization stocks by taking into account the optimal rate of return with a certain level of risk using the Sharpe single index model as the most commonly used method for the expected return risk trade-off to measure the impact of the COVID-19 on the Indonesian Stock Market (JCI) as a financial market that has been affected by the COVID-19, as indicated by a drastic decline in the JCI This analysis will be very useful for investors in determining and forming their stock portfolio amid situations where global investor confidence has declined and uncertainty over investment returns has increased. Under the COVID-19 pandemic and the uncertainty of market conditions, the investors should always consider the opportunities to get returns and the risks that must be faced
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