Title: ANALYSIS OF EFFICIENT MARKET THEORY AND RANDOM WALK THEORY IN THE INDONESIAN CAPITAL MARKET

Author: BERNAD MAHARDIKA SANDJOJO

Item Type : Thesis (Thesis)

Affiliations: Master of Management Science Study Program, Faculty of Economics and Business, Universitas Airlangga , Surabaya, Indonesia

Publisher: Universitas Airlangga

 

Abstract

The capital market in Indonesia still holds extraordinary potential considering its growth from year to year is always significant both in size and price. IHSG has increased by 15.32% since the end of 2015 (IHSG closed in 2015 at 4593.01) until the end of 2016 and the value of Indonesian capital market capitalization in 2016 has grown significantly from the previous amount of 353.25 billion USD (around 4872 trillion rupiah) in end of 2015 and became 428.22 billion USD (around 5753 trillion rupiah) at the end of 2016 or around 48.5% of Indonesia's GDP, which is the 2nd largest growth in Asia after Thailand. The many theories circulating in the market in selecting issuers for portfolio formation are a threat to novice investors before entering the capital market. So this research aims to find out whether fundamental analysis is able to provide returns above the market compared to choosing a portfolio at random. This research uses three main criteria from the fundamental ratios commonly used by Warren Buffet in selecting shares, namely ROE, DER, and NPM to compare returns versus risk with randomly formed portfolios and market performance. Warren Buffet's fundamental criteria are used as a reference considering that until now there has been no investor who has had consistent performance like Warren Buffet for decades. The research results show that portfolios that are formed fundamentally and randomly succeed in outperforming the market, but not significantly. This shows that the capital market in Indonesia is efficient enough that it is still not possible to take advantage of the market. On the other hand, the return versus risk between randomly formed portfolios tends to be the same or even slightly outperforms most portfolios formed based on fundamental criteria. This shows that shares in Indonesia tend to move not based on past performance results but more based on future information. Issuers will tend to move randomly so that portfolios that are formed fundamentally and randomly do not provide significantly different returns.

Keywords: Indonesian capital market, portfolio formation, fundamental analysis, Warren Buffet, Return on Equity, Debt to Equity Ratio, Net Profit Margin, Random portfolio.

 

Sources: http://repository.unair.ac.id/64902/