Robiyanto Robiyanto

Faculty of Economics and Business, 

Satya Wacana Christian University, Indonesia

robiyanto.robiyanto@uksw.edu 

ORCID 0000-0003-3565-1594

Gold and Capital Market in Indonesia: A Preview on Strategy of Hedging and Diversification

Didik Hadiyatno

Faculty of Economics, University of Balikpapan

Indonesia

didikhadiyatno@yahoo.co.id

Sudjinan Sudjinan

Faculty of Economics, University of Balikpapan,

Indonesia

sudjinan@uniba-bpn.ac.id

Rihfenti Ernayani

Faculty of Economics, University of Balikpapan

Indonesia

rihfenti@uniba-bpn.ac.id

Abstract. This study examines the establishment of a portfolio among sharia stocks represented by the Jakarta Islamic Index (JII) with gold (gold futures contracts). Gold price used in this research was the gold price in the international market which was in USD denomination and also converted into Rupiah (IDR), by considering commodity futures instruments in Indonesia using fixed rate or floating rate option. The data analysis technique used in this research was the dynamic portfolio formulation by using Dynamic Conditional Correlation – Generalized Autoregressive Conditional Heteroscedasticity (DCC-GARCH), so that the portfolio produced was an active portfolio and it could change its composition over time. The results of this study indicate that gold is able to provide hedging effectiveness as well as to reduce the volatility of sharia stocks included in the JII in the Indonesia Stock Exchange. This research is also able to prove that including gold instruments into a sharia-based stock portfolio can improve portfolio performance. Unfortunately, such strategies could not be counted as a sharia-based investment strategy, although stocks used in this portfolios were sharia compliant since futures contract was not considered as a sharia compliant instrument as it can be considered as haram (prohibited) in Islam.

Received: December, 2018

1st Revision: February, 2019

Accepted: May, 2019

DOI: 10.14254/2071-8330.2019/12-2/7

JEL Classification: G11

Keywords: DCC-GARCH, gold, Jakarta Islamic Index (JII), Indonesian capital market