Abstract:
This research attempts to formulate new mean-risk model to replace Markowitz’s mean-variance model by using ARCH as the risk measurement and also provide new benchmark in selecting optimal portfolio specifically for inefficient market condition. Sample used in this data is closing price of Indonesia stock and bonds index from 2013 to 2018. This research found that Markowitz’s model is still superior when utilized in daily data, while mean-ARCH model is appropriate with wider gap data like monthly observation. Historical return also proven to be more appropriate as benchmark in selecting optimal portfolio rather than risk-free rate in the case of inefficient market. Using another risk measurement in building portfolio and observing other countries market with inefficient condition is suggested for further research.
