Optimizing ESG Leaders’ Stock Portfolio on the Indonesia Stock Exchange (IDX): A Single Index Model Analysis (2020-2023)

Abstract

This research uses the Single Index Model to analyze ESG Leaders index shares on the IDX from 2020 to 2023 based on optimal portfolio composition, fund proportion, return and risk. The results show that 4 of the 7 optimal stock samples according to the model are the best. This research expands understanding of the composition and proportion of funds in ESG Leaders shares and enriches the literature on forming ideal portfolios using a single index model. Apart from that, this research supports the literature on the application of the single index model in the Indonesian capital market. The results indicate that four out of the seven stock samples that the model deemed optimal are the best. The stocks in the ideal portfolio had the following fund proportions: AKR Corporindo Tbk (AKRA) at 26.57%, Tower Bersama Infrastructure Tbk (TBIG) at 33.78%, Bank Mandiri (Persero) Tbk (BMRI) at 23.22%, and Bank Rakyat Indonesia (Persero) Tbk (BBRI) at 16.43%. With a corresponding risk level of 0.0157, the ideal portfolio generated a projected monthly return of 0.0157. The novelty of this research lies in its demonstration of ESG-specific stock optimization, providing actionable insights for investors interested in sustainable investing. In addition, the results can help ESG Leaders company leaders to improve performance and attract investors who consider sustainability aspects of environmental, social and governance responsibilities.