An Application of the Black-Litterman Model with ARIMA-ARCH Views for Islamic Stock Portfolio in Indonesian Stock Exchange

Bima Wahyu Widodo, Noer Azam Achsani, Trias Andati

Abstract


The aims of this research were: 1) to do forecasting return of stocks using ARIMA-ARCH method and determining the level its error estimation 2) to form the portfolio combination of optimal islamic stock using the method of Black Litterman with ARIMA-ARCH in bullish and bearish market condition 3) to compare the formed portfolio performance of Islamic stocks with some benchmark indices. The result of this research showed that the forecast of stock return of ARIMA and ARCH model can be used as the input of black litterman model view and can determine the confidence level of stocks forecasting based on the value of Mean Absolute Deviation. Using the Model of ARIMA-GARCH on Black Litterman Portfolio during 4 weeks at the bullish condition and 4 weeks at the bearish condition in which this can generally give a performance above the benchmark index, like IHSG, JII, and LQ45


Keywords


Islamic stocks, Black Litterman model, ARIMA-ARCH models

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References


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DOI: https://doi.org/10.24203/ajbm.v5i4.4943

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