THE EFFECT OF DIVERSIFICATION ON REDUCING PORTFOLIO RISK IN INDONESIA STOCK EXCHANGE a). Yayan Cahyana, SE. MM b). Prof. Dr. Memen Kustiawan, SE., Ak., M.Si., CA c). Dr. Ikin Solikin, SE, M.Si. Ak. CA
a). Universitas Pendidikan Indonesia
JL. Dr. Setiabudi No. 229 Bandung 40154
yanch1966[at]upi.edu
b). Universitas Pendidikan Indonesia
JL. Dr. Setiabudi No. 229 Bandung 40154
memen.kustiawan[at]upi.edu
c). Universitas Pendidikan Indonesia
JL. Dr. Setiabudi No. 229 Bandung 40154
ikin.solikin[at]upi.edu
Abstract
Diversification can reduce risk, but there is no consensus on how many securities are needed to achieve maximum diversification. Studies conducted on different capital markets have produced different results. This study aims to determine the effect of diversification on portfolio risk. Specifically to determine the size of the optimal portfolio or diversified portfolio and to know the effect of the amount of assets in the portfolio on portfolio risk on the Indonesia Stock Exchange. This study uses an optimization model of variance and portfolio risk is a function of the number of shares held in the portfolio. The data used is the secondary data consisting of monthly stock returns for 10 years from January 2008 to December 2018. This study uses stocks listed on the LQ45 Index and has complete information about monthly returns. Portfolios of various sizes are formed from randomly selected LQ45 stocks. This study found that portfolio risk was reduced when the number of securities in the portfolio increased and there was a significant relationship between diversification and risk of the portfolio on the Indonesia Stock Exchange.
Keywords: Diversification, portfolio, risk, return, stoc, indonesia stock exchange
