DCC-GARCH Application in Formulating Dynamic Portfolio between Stocks in the Indonesia Stock Exchange with Gold

Abstract

T his study tries to form a portfolio by using a method which may accommodate the dynamic of assets correlation and the abnormality of stock return distribution namely DCC-GARCH. Th e objective of th is study is to combine individual stocks with gold, so retail investor can also apply this method. This study us ing data from January 200 9 –December 201 7 period. Samples in this study were nine stocks. The results of this study showed that there were two stocks with higher Sharpe Ratio if combined with gold through dynamic portfolio formation (hedged portfolio) namely BBCA -Gold and SMCB -Gold than unhedged portfolio . And there are three stocks with higher Treynor Ratio if combined with gold through dynamic portfolio formation (hedged portfolio) namely BBCA -Gold , SMCB -Gold and UNTR-Gold than unhedged portfolio . This finding proves that the DCC-GARCH application can improve the risk-adjusted return of these stocks when combined with gold.