Designing the Equity Portfolio for Optimizing Indonesia Hajj Fund using The Fama French Model
Resi Ariyasa Qadri

Polytechnic of State Finance STAN

Abstract

Objective: This study seeks to advance the investment strategy of Indonesia^s Hajj Financial Management Agency (BPKH) by developing an enhanced Fama-French model tailored for constructing Sharia-compliant equity portfolios. The research specifically focuses on stocks listed in the Jakarta Islamic Index (JII), aiming to achieve a balance between risk management and return optimization while adhering to Sharia principles.

Method: The research adopts a quantitative methodology, utilizing data extracted from the Bloomberg database. The core of the analysis is the refinement of the Fama-French five-factor model, which has been adjusted to more accurately reflect the characteristics of Sharia-compliant stocks. This refined model is instrumental in identifying both systematic and unsystematic risks, ensuring alignment with the strategic investment goals of BPKH.

Results: The study successfully introduces a refined quantitative model that enhances portfolio diversification and optimizes stock selection within the constraints of Sharia compliance. The improved Fama-French model demonstrates effectiveness in identifying and mitigating risks, particularly during periods of market instability such as the COVID-19 pandemic. The results underscore the model^s ability to balance risk and return, while maintaining strict adherence to Sharia principles.

Implications: This research offers valuable insights for both BPKH and broader investment communities, presenting a rigorous, data-driven framework for managing Sharia-compliant equity portfolios. The refined model empowers BPKH to make more informed investment decisions, thereby enhancing the potential for return optimization within the boundaries of Islamic finance principles. Additionally, the study contributes to the academic discourse on quantitative methods in Sharia finance, offering a novel perspective on portfolio management in this specialized area.

Keywords: Hajj-Fund- Fata-French- Equity- BPKH- Indonesia

Topic: Islamic capital market