BETA CALCULATION ALTERNATIVES USING IHSG AND LQ45 ON AGRICULTURE, BASIC INDUSTRY, CONSUMER GOODS AND MANUFACTURE SECTORS JSX CASE:

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1 BETA CALCULATION ALTERNATIVES USING IHSG AND LQ45 ON AGRICULTURE, BASIC INDUSTRY, CONSUMER GOODS AND MANUFACTURE SECTORS JSX CASE: By: Ardhi Agung Pradhana Undergraduate Program School of Business and Management Institut Teknologi Bandung

2 ABSTRACT There are two main market indices in Indonesia, IHSG and LQ45. Each of them has a different structure. In one hand, IHSG is the index that represents all of the stocks that are listed in the stock market. On the other hand, LQ45 only contains 45 stocks that are most liquid and have a big influence to the market. In this research, the more influential index in 4 sectors: Agriculture, Basic Industry, Consumer Goods, and Manufacture will be determined, in the context of forecasting the expected return in the next period. To calculate the expected return, this research use CAPM (Capital Asset Pricing Method) method. CAPM method needs beta (β) of each sector to calculate the return. β will be calculated first, using the 5 years historical data of each sector. After the β and the expected return using each index has been calculated with the CAPM, the result of will be compared with the actual return in the next period. For example, the expected return in the January will be compared with the actual return of February. In the comparison, the gap can be seen. The gap will also be compared to see which gap is smaller, gap IHSG or gap LQ45. The gap will be compared using mean analysis and variance analysis, furthermore t-test and F- test. From the mean analysis, the result shows that all the 4 sectors tend to follow the IHSG index. The gap IHSG is always smaller than the gap LQ45. In the variance analysis, the null hypothesis is that variance gap IHSG is smaller than the variance gap LQ45, which means that the volatility of the gap IHSG is smaller than the gap LQ45. The result shows that there is no significant evidence to reject the null hypothesis. In the mean time, the gap IHSG can be considered of having the smaller volatility than the gap LQ45. In the end, all of the 4 sectors are best use the IHSG index to calculate the expected return. The expected return has the more accurate result and the volatility is also smaller. Key Words : IHSG, LQ45, CAPM, Gap, Mean Analysis, Variance Analysis, Volatility. i

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4 ABSTRAKSI Di Indonesia ada dua indeks pasar yang pokok, IHSG dan LQ45. Masingmasing punya struktur yang beda. Di satu sisi IHSG berisikan semua saham yang terdaftar di pasar modal, sedangkan LQ45 hanya berisikan 45 saham yang paling berpengaruh dan paling likuid. Dalam riset ini akan diketahui indeks mana yang lebih bisa dipakai di 4 sektor industri: Pertanian, Industri Dasar dan Kimia, Consumer Goods, dan Manufaktur dalam konteks untuk menghitung nilai pendapatan di periode mendatang. Untuk menghitung nilai pendapatan, riset ini menggunakan metode CAPM (Capital Assets Pricing Method), menggunakan beta (β) yang akan didapat dari data historik selama 5 tahun dari tiap- tiap sektor. Setelah β dan ekspektansi nilai pendapatan tiap sektor sudah didapatkan, hasilnya akan dibandingkan dengan nilai pendapatan sebenarnya. Setelah dibandingkan, selisihnya akan kelihatan. Selisih dari nilai pendapatan menggunakan IHSG aka dibandingkan dengan selisih dari nilai pendapatan menggunakan LQ45, mana yang lebih kecil selisihnya. Selisih ini akan dianalisis menggunakan metode rata-rata dan metode varian, lebih detilnya melewati t-test dan F-test. Dari metode rata-rata akan kelihatan selisih yang lebih kecil, dan kesemua 4 sektor lebih cenderung mengikuti IHSG, selisihnya selalu lebih kecil daripada LQ45. Lewat metode varian akan ketahuan mana yang lebih volatil, karena mungkin lewat rata-rata satu index lebih baik dari yang lain, tetapi ada kemungkinan dia lebih volatil yang menyebabkan hasilnya menjadi tidak akurat. Hipotesa awal di riset ini adalah bahwa selisih IHSG mempunyai varian yang lebih kecil dari selisih LQ45, dan hasilnya adalah bahwa tidak ada hasil yang signifikan yang dapat membuat hipotesa awal ditolak. Jadi untuk saat ini selisih IHSG dapat dikatakan mempunyai volatilitas lebih kecil daripada selisih LQ45. Pada akhirnya dari 4 sektor semua lebih baik menggunakan IHSG untuk menghitung nilai ekpektansi pendapatan di periode mendatang. Hasilnya lebih akurat dan mempunyai volatilitas yang lebih kecil Kata Kunci : IHSG, LQ45, CAPM, Selisih, Metode Rata-Rata, Metode Varian, Volatilitas. iii

5 BETA CALCULATION ALTERNATIVES USING IHSG AND LQ45 ON AGRICULTURE, BASIC INDUSTRY, CONSUMER GOODS AND MANUFACTURE SECTORS JSX CASE: By: Ardhi Agung Pradhana Undergraduate Program School of Business and Management Institut Teknologi Bandung v

6 VALIDATION PAGE BETA CALCULATION ALTERNATIVES USING IHSG AND LQ45 ON AGRICULTURE, BASIC INDUSTRY, CONSUMER GOODS AND MANUFACTURE SECTORS JSX CASE: By: Ardhi Agung Pradhana Undergraduate Program School of Business and Management Institut Teknologi Bandung Validated By Deddy P. Koesrindartoto Ph.D NIP: vii

7 FOREWORD Praise the Lord for His never-ending blesses. He is the only reason that the writer can finish this research. The writer would also like to thank the people that are involved in finishing this research: 1. Mr. Deddy P. Koesrindartoto Ph.D as the supervisor of this research. Thank you for the guidance, motivation, and knowledge. 2. Mr. Hanif from Jakarta Stock Exchange for the 5 years historical data of IHSG, LQ45, Agriculture, Basic Industry, Consumer Goods, and Manufacture indexes. 3. My family that always supports me. 4. Ms. Widita Rarasati for her guidance in calculating the F-test. 5. Mr. Aryo F. Syaifulloh whom I shared a lot in finishing this research. 6. Ms. Yoan Eldilian for lending her house as the base camp in finishing this research. 7. All of my friends in SBM-ITB that cannot be mentioned one by one. I aware that this research is far from perfect and needs a following research that can complement this research. Bandung, July 2007 Ardhi Agung Pradhana ix

8 LIST OF CONTENTS ABSTRACT... i VALIDATION PAGE vii FOREWORD.. ix LIST OF CONTENTS xi LIST OF FIGURES xiii LIST OF TABLES.. xv LIST OF SYMBOLS.. xvii LIST OF EQUATION xix LIST OF APPENDICES. xxi CHAPTER 1 INTRODUCTION Background Problem Identification The Importance of Problem Solving Problem Limitation Report Outline 3 CHAPTER 2 THEORITICAL FOUNDATIONS.. 5 CHAPTER 3 METHODOLOGY Preliminary Study Problem Identification Hypothesis Literature Study Data Collection Data Analysis Test Hypothesis Conclusion. 13 CHAPTER 4 DATA COLLECTION AND ANALYSIS Data Collection IHSG LQ Agriculture Basic Industry Consumer Goods Manufacture.. 23 xi

9 4.2 Data Analysis Mean Analysis Agricultural Basic Industry Consumer Goods Manufacture Variance Analysis Agriculture Basic Industry Consumer Goods Manufacture.. CHAPTER 5 CONCLUSIONS AND RECOMMENDATIONS Conclusion Agriculture Basic Industry Consumer Goods Manufacture Recommendation... REFERENCES... APPENDIX xii

10 LIST OF FIGURES Figure 2.1 Markowitz Efficient Frontier Model... Figure 3.1 Flow Diagram Methodologies... Figure 4.1 IHSG Trend from Year 2002 to 2006 Figure 4.2 LQ45 Trend from Year 2002 to 2006 Figure 4.3 Agriculture Index Trend from Year 2002 to Figure 4.4 Basic Industry Index Trend from Year 2002 to 2006 Figure 4.5 Consumer Goods Index Trend from Year 2002 to Figure 4.6 Manufacture Index Trend from Year 2002 to Figure 4.7 Agriculture Gap IHSG and Gap LQ45 Trend... Figure 4.8 Basic Industry Gap IHSG and Gap LQ45 Trend... Figure 4.9 Consumer Goods Gap IHSG and Gap LQ45 Trend.. Figure 4.10 Manufacture Gap IHSG and Gap LQ45 Trend xiii

11 LIST OF TABLES Table 4.1 LQ45 List from February 2004 to January 2005 Table 4.2 LQ45 List from February 2005 to January 2006 Table 4.3 LQ45 List from February 2006 to January 2007 Table 4.4 Agriculture Expected Return Calculation... Table 4.5 Agriculture Sector Gap IHSG and Gap LQ45 Table 4.6 Agriculture Sector t-test Result... Table 4.7 Basic Industry Sector Gap IHSG and Gap LQ45... Table 4.8 Basic Industry Sector t-test Result.. Table 4.9 Consumer Goods Sector Gap IHSG and Gap LQ45... Table 4.10 Consumer Goods Sector t-test Result... Table 4.11 Manufacture Sector Gap IHSG and Gap LQ45... Table 4.12 Manufacture Sector t-test Result... Table 5.1 Research Result xv

12 LIST OF SYMBOLS β : Beta, level of risk in a portfolio. E ( Ri ) : The expected return of the portfolio, in this research it is R f the each sector index s return. : The risk-free rate of interest (SBI rate) E ( R ) m : The expected return of the market Covar μ 2 σ df F U : Covariance, a measure of common movement (Grinold, Richard C, 1993:28). : Mean, a measure of central tendency (Levine, Krehbiel, Berenson, 2003:101). : Variance : Degree of freedom : Upper-tail critical value xvii

13 LIST OF EQUATION Equation 2.1 Calculation Formula for IHSG. Equation 2.2 Formula for Adjusting the Base Value. Equation 2.3 Capital Asset Pricing Model Formula.. Equation 2.4 Beta Calculation Formula. Equation 2.5 t-test Calculation Formula... Equation 2.6 F-test Calculation Formula xix

14 LIST OF APPENDICES Appendix A Agriculture Expected Return Calculation. Appendix B Basic Industry Expected Return Calculation Appendix C Consumer Goods Expected Return Calculation Appendix D Manufacture Expected Return Calculation xxi