Chapter 5

Investment Analysis and Portfolio Management

Frank K. Reilly & Keith C. Brown

Part 1: BACKGROUND
1 Seting Investasi 2 Alokasi Aset

RETURN RISIKO PASAR MODAL

3 Investasi

5 Indeks

4 Pasar
2

Bandi, 2010

Chpt 5

FE UNS

Chapter 5 Security-Market Indicator Series

Questions to be answered:
1. 2. 3. 4. 5. 6. 7. What are some major uses of security-market indicator series (indexes)? What are the major characteristics that cause alternative indexes to differ? What are the major stock-market indexes in the United States and globally and what are their characteristics? What are the major bond-market indexes for the United States and the world? What are some of the composite stock-bond market indexes? Where can you get historical and current data for all these indexes? What is the short-run relationship among many of these indexes in the short run (monthly)?

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Uses of Security-Market Indexes

As benchmarks to evaluate the performance of professional money managers To create and monitor an index fund To measure market rates of return in economic studies For predicting future market movements by technicians As a substitute for the market portfolio of risky assets when calculating the systematic risk of an asset
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Differentiating Factors in Constructing Market Indexes

The sample
size breadth source

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Differentiating Factors in Constructing Market Indexes

Weighting of sample members
price-weighted series value-weighted series unweighted (equally weighted) series

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Differentiating Factors in Constructing Market Indexes

Computational procedure
arithmetic average compute an index and have all changes, whether in price or value, reported in terms of the basic index geometric average
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Stock-Market Indicator Series

Price Weighted Series Dow Jones Industrial Average (DJIA) Nikkei-Dow Jones Average Value-Weighted Series NYSE Composite S&P 500 Index and more Unweighted Price Indicator Series Value Line Averages Financial Times Ordinary Share Index
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Dow Jones Industrial Average (DJIA)

Best-known, oldest, most popular series Price-weighted average of thirty large wellknown industrial stocks, leaders in their industry, and listed on NYSE Total the current price of the 30 stocks and divide by a divisor (adjusted for stock splits and changes in the sample)
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Example of Change in DJIA Divisor When a Sample Stock Splits

After Three-for One Before Split Split by Stock A Prices Prices A 30 10 B 20 20 C 10 10 60 3 = 20 40 X = 20 X = 2 (New Divisor)
Bandi, 2010 Chpt 5 FE UNS

Exhibit 5.1

10

Demonstration of the Impact of Differently Priced Shares on a Price-Weighted Indicator Series

Period T A 100 B 50 C 30 Sum 180 Divisor 3 Average 60 Percentage Change
Bandi, 2010

PERIOD T+ 1 Case A Case B 110 100 50 50 30 33 190 183 3 3 63.3 61 5.5% 1.7%
Chpt 5

Exhibit 5.2
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Criticism of the DJIA

Limited to 30 non-randomly selected blue-chip stocks Does not represent a vast majority of stocks The divisor needs to be adjusted every time one of the companies in the index has a stock split Introduces a downward bias by reducing weighting of fastest growing companies whose stock splits
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Nikkei-Dow Jones Average

Arithmetic average of prices for 225 stocks on the First Section of the Tokyo Stock Exchange (TSE) Best-known series in Japan Price-weighted series formulated by Dow Jones and Company The 225 stocks represent 15 percent of all stocks on the First Section

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Value-Weighted Series
Derive the initial total market value of all stocks used in the series
Market Value = Number of Shares Outstanding X Current Market Price

Assign an beginning index value (100) and new market values are compared to the base index Automatic adjustment for splits Weighting depends on market value
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Value-Weighted Series
Index t PQ = P Q
t b t b

Beginning Index Value

where: Indext = index value on day t Pt = ending prices for stocks on day t Qt = number of outstanding shares on day t Pb = ending price for stocks on base day Qb = number of outstanding shares on base day
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Unweighted Price Indicator Series

All stocks carry equal weight regardless of price or market value May be used by individuals who randomly select stocks and invest the same dollar amount in each stock Some use arithmetic average of the percent price changes for the stocks in the index

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Unweighted Price Indicator Series

Value Line and the Financial Times Ordinary Share Index compute a geometric mean of the holding period returns and derive the holding period yield from this calculation

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Global Equity Indexes

There are stock-market indexes available for most individual foreign markets These are closely followed within each country These are difficult to compare due to differences in sample selection, weighting, or computational procedure Groups have computed country indexes

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FT/S&P-Actuaries World Indexes

Jointly compiled by The Financial Times Limited, Goldman Sachs & Company, and Standard & Poors in conjunction with the Institute of Actuaries and the Faculty of Actuaries Measures 2,271 securities in 30 countries Covers 70% of the total value of all listed companies in each country

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FT/S&P-Actuaries World Indexes

Includes actively traded medium and small corporations along with major international equities Securities included must allow direct holdings of shares by foreign nationals Index is market-value weighted with a base date of December 31, 1986 = 100

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FT/S&P-Actuaries World Indexes

Index results are reported in U.S. dollars, U.K. pound sterling, Japanese yen, German mark, and the local currency of the country included Results are calculated daily after the New York markets close and published the following day in the Financial Times Geographic subgroups are also published

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Morgan Stanley Capital International (MSCI) Indexes

Three international, nineteen national, and thirty-eight international industry indexes Include 1,375 companies listed on stock exchanges in 19 countries with a combined capitalization representing approximately 60 percent of the aggregate market value of the stock exchanges of these countries

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Morgan Stanley Capital International (MSCI) Indexes

All the indexes are market-value weighted Reporting is in U.S. dollars and the countrys local currency Also provides price to book value (P/BV) ratio price to cash earnings (earnings plus depreciation) (P/CE) ratio price to earnings (P/E) ratio dividend yield (YLD)

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Morgan Stanley Capital International (MSCI) Indexes

The Morgan Stanley group index for Europe, Australia, and the Far East (EAFE) is used as the basis for futures and options contracts on the Chicago Mercantile Exchange and the Chicago Board Options Exchange

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Dow Jones World Stock Index

Introduced in January 1993 2,200 companies worldwide Organized into 120 industry groups Includes 33 countries representing more than 80 percent of the combined capitalization of these countries Countries are grouped into three major regions:Asia/Pacific, Europe/Africa, and the Americas Each countrys index is calculated in its own currency as well as in the U.S. dollar

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Comparison of World Stock Indexes

Correlations between the three series since December 31, 1991 to December 31, 2000, indicates an average correlation coefficient among them in excess of 0.99

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Bond-Market Indicator Series

Relatively new and not widely published Growth in fixed-income mutual funds increase need for reliable benchmarks for evaluating performance Many managers have not matched aggregate bond market return increasing interest in bond index funds requires an index to emulate

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Difficulties in Creating and Computing Bond-Market Indicator Series

Universe of bonds is much broader than that of stocks Range of bond quality varies from U.S. Treasury securities to bonds in default Bond market changes constantly with new issues, maturities, calls, and sinking funds Bond prices are affected by duration, which is dependent on maturity, coupon, and market yield Correctly pricing individual bond issues without current and continuous transaction prices available poses significant problems

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Investment-Grade Bond Indexes

Four investment firms maintain indexes for Treasury bonds and other investment grade (rated BBB or higher) bonds Relationship among these bonds is strong (correlations average 0.95) Returns for all these bonds are driven by aggregate interest rates - shifts in the government yield curve

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High-Yield Bond Indexes

Non investment-grade bonds rated BB, B, CCC, CC, C Four investment firms and two academicians created indexes Relationship among alternative high-yield bond indexes is weaker than among investment grade indexes Merrill Lynch Convertible Securities Indexes

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Global Government Bond Market Indexes

Global bond market dominated by government issues Several indexes created by major investment firms Measure total rates of return Use market-value weighting Use trader pricing But sample sizes differ as do numbers of countries included

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Global Government Bond Market Indexes

Differences affect long-term risk-return performance Low correlation among several countries is similar to stocks Significant exchange rate effect on volatility and correlations

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Composite Stock-Bond Indexes

Beyond separate stock indexes and bond indexes for individual countries, a natural step is a composite series that measures the performance of all securities in a given country This allows examination of benefits of diversification with a combination of asset classes such as stocks and bonds in addition to diversifying within the asset classes of stocks or bonds

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Merrill Lynch-Wilshire U.S. Capital Markets Index (ML-WCMI)

Market-value weighted index measures total return performance of the combined U.S. taxable fixed income and equity markets Combination of Merrill-Lynch fixed-income indexes and the Wilshire 5000 common-stock index Tracks over 10,000 stocks and bonds

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Brinson Partners Global Security Market Index (GSMI)

Includes: U.S. stocks and bonds Non-U.S. equities Non-dollar bonds Allocation to cash Matches a typical U.S. pension fund allocation policy Close to the theoretical market portfolio of risky assets referred to in the CAPM literature

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Comparison of Indexes Over Time

Correlations among monthly equity price changes Most differences are attributable to sample differences Different segments of U.S. stock market or from different countries Lower correlations between NYSE series and AMEX series or NASDAQ index than between NYSE alternative series (S&P 500 and NYSE composite)

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Comparison of Indexes Over Time

Correlations among monthly bond indexes Among investment-grade bonds correlations range from 0.90 to 0.99 Interest rates differ by risk premiums Rates of return are determined by systematic interest rate variables Low correlation in global returns to U.S. returns support global diversification

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Mean Annual Security RiskReturns and Correlations

There are clear differences among the series due to different asset classes (e.g., stocks versus bonds) and when there are different samples within asset classes There is a positive relationship between the average rate of return on an asset and its measure of risk

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Mean Annual Security RiskReturns and Correlations

The security market indexes can be used 1. to measure the historical performance of an asset class 2. as benchmarks to evaluate the performance of a money manager for a mutual fund, a personal trust, or a pension plan

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The Internet Investments Online

www.bloomberg.com www.stockmaster.com www.asx.com.au www.bolsamadrid.es www.tse.com www.nikko.co.jp:80/SEC/index_e.html www.exchange.de/realtime/dax_d.html

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Future topics Chapter 6

Sources of Information on Global Investments Aggregate Economic Analysis Aggregate Security-Market Analysis Industry Analysis Individual Stock and Bond Analysis Mutual Funds

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INDEKS DI BEI
suatu indikator yang menunjukkan pergerakan harga saham. berfungsi sebagai indikator trend pasar, artinya pergerakan indeks menggambarkan kondisi pasar pada suatu saat, apakah pasar sedang aktif atau lesu.

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INDEKS DI BEI
Manfaat: kita dapat mengetahui trend pergerakan harga saham saat ini;
apakah sedang naik, stabil atau turun. Contoh: jika di awal bulan nilai indeks 300 dan saat ini di akhir bulan menjadi 360, maka kita dapat mengatakan bahwa secara rata-rata harga saham mengalami peningkatan sebesar 20%.

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INDEKS DI BEI
Pergerakan indeks menjadi indikator penting bagi para investor
menentukan apakah mereka akan menjual, menahan atau membeli suatu atau beberapa saham. Karena harga-harga saham bergerak dalam hitungan detik dan menit, maka nilai indeks pun bergerak turun naik dalam hitungan waktu yang cepat pula.
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INDEKS DI BEI
Di Bursa Efek Indonesia setidaknya terdapat 6 (enam): 1. Indeks Individual, 2. Indeks Harga Saham Sektoral 3. Indeks Harga Saham Gabungan atau IHSG (Composite Stock Price Index), 4. Indeks LQ 45 5. Indeks Syariah atau JII (Jakarta Islamic Index). 6. Indeks Papan Utama dan Papan Pengembangan. 7. Indeks KOMPAS 100.
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INDEKS INDIVIDUAL & SEKTORAL

Indeks Individual, menggunakan indeks harga masingmasing saham terhadap harga dasarnya, atau indeks masing-masing saham yang tercatat di BEI. Indeks Harga Saham Sektoral, menggunakan semua saham yang termasuk dalam masing-masing sektor, misalnya sektor keuangan, pertambangan, dan lain-lain. Di BEI indeks sektoral terbagi atas sembilan sektor yaitu: pertanian, pertambangan, industri dasar, aneka industri, konsumsi, properti, infrastruktur, keuangan, perdagangan dan jasa, dan manufaktur.
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INDEKS GABUNGAN & LQ 45

Indeks Harga Saham Gabungan atau IHSG (Composite Stock Price Index), menggunakan semua saham yang tercatat sebagai komponen penghitungan indeks. Indeks LQ 45, yaitu indeks yang terdiri 45 saham pilihan dengan mengacu kepada 2 variabel yaitu likuiditas perdagangan dan kapitalisasi pasar. Setiap 6 bulan terdapat saham-saham baru yang masuk kedalam LQ 45 tersebut.

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INDEKS ISLAM
Indeks Syariah atau JII (Jakarta Islamic Index).:indeks yang terdiri 30 saham mengakomodasi syariat investasi dalam Islam atau Indeks yang berdasarkan syariah Islam. dalam Indeks ini dimasukkan saham-saham yang memenuhi kriteria investasi dalam syariat Islam, yg tidak:
1. 2. 3. 4. Usaha perjudian dan permainan yang tergolong judi. Usaha lembaga keuangan konvensional (ribawi) termasuk perbankan dan asuransi konvensional. Usaha makanan dan minuman yang tergolong haram Usaha barang-barang ataupun jasa yang merusak moral dan bersifat mudarat
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