Theory And Literature Review
Theory And Literature Review
Risk
Risk
usually measured by calculating the
standard deviation of the historical returns or average returns of a specific investment. Jones in his book (2002; p133) said from the types of risk divided into:
•
Systematic Risk
Systematic (Market)
Risk is variability in a security’s
total returns that is directly associated with
overall movements in the general
market or economy.
Virtually all securities have some systematic risk, wheter bonds or stocks, because systematic risk encompasses interest rate, market and inflation risks. The
investor cannot escape this part of the risk because no matter investor doing diversifies
the risk of the overall market cannot
be avoided.
•
Nonsystematic Risk
Nonsystematic risk is variability in a security’s total returns not
related to overall market
variability. This risk is unique to a particular security and is associated with such factors as business risk, financial risk and also liquidity risk.
Although
all
securities
tend
to
have
nonsytematic risk, it is mgenerally connected with common stocks.
Index
According to www.idx.co.id, Stock price index is an indicator which
shows the stock price movement. Index has a function as a market trend indicator, the index movement describes a market
condition on a certain time whether
the market in active or passive.
Types of indices in
Indonesian stock Exchange are:
• Individual Index
uses the price
index of each stock
to base price or each stock index that
listed in Indonesian Stock Exchange.
• Sectored Stock Price Index uses
all
stocks included in each sectors (Agricultures, Basic Industries, Consumptions,
Differs Industries, Finances, Infrastructures, Mining, Properties,
Trading Services and
Manufactures).
• Composite Stock
Price
Index
uses
all
listed
stocks
as
as
component of index calculation.
• LQ45 Index consists
of 45 stocks with criteria
applied. Those criteria are:
o Included in
top 60 companies
with the highest market
capitalization in the last 12 months
o Included in the top 60 companies with the
highest transaction value in a regular market
in the last 12 months.
o Have been listed
in Indonesian Stock Exchange at least 3 months.
o Having good financial conditions,
prospect of growth and high transaction value and frequency.
• Jakarta Islamic Index consists
of 30 stocks accommodates Islamic
Investment Law. Stocks
with below criteria
are excluded in Jakarta Islamic Index; the criteria are:
o Business or gaming
with
associated in gambling or
restricted trading.
o Interest Profit
financial institution.
o Business with produces distributes and trades food and
beverage against the Islamic Law.
o Business related with
produces distributes and/or provides product or services with no respect of moral or ruins intellect.
• Blue Chip and Expansion Index, stock price index exclusively bases on the group of stocks
listed in Indonesian Stock
Exchange.
• Kompas100 Index,
stock
price
index
with
the incorporated of Indonesian Stock Exchange and
Kompas newspaper with conditions as follow:
o Listed in Indonesian Stock Exchange at least 3 months.
o Included in Composite Index (IHSG).
o Bases on the consideration of company’s fundamental factor and pattern of stocks
trading.
o Includes
in 150 stocks with biggest transaction value and frequency in
regular market for the last 12 months.
o The process as follows:
Top 60 from
the
150
selected
stocks
with
the
largest transaction value will entered
in the calculation of Kompas100.
Acquire 75 stocks out of
90 stocks based on regular transactions in the market.
Acquire 60
from
75
based
on
frequency of transactions in the market.
Select 40
stocks
from
60
based on
market capitalization.
Covariance
The covariance is a measure of the strength of the relationship
between two discrete random
variables, X and Y. Levine,
Stephan, Krehbiel and Berenson
explained that a positive
covariance indicates a positive relationship. A negative covariance indicates a negative relationship
and covariance of 0 indicates that the
two variables are independent (2008; p184).
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