Optimal Cross-Asset-Class Portfolio Construction Using the Markowitz Mean-Variance Framework: Evidence from a U.S. Dollar-Based Foreign Investor Perspective

Rafli Ahmad Fauzan; Subiakto  Soekarno; Raden Aswin  Rahadi

doi:10.71435/742327

Authors

Rafli Ahmad Fauzan Sekolah Bisnis dan Manajemen, Institut Teknologi Bandung, Bandung, Indonesia
Subiakto Soekarno Sekolah Bisnis dan Manajemen, Institut Teknologi Bandung, Bandung, Indonesia
Raden Aswin Rahadi Sekolah Bisnis dan Manajemen, Institut Teknologi Bandung, Bandung, Indonesia

DOI:

https://doi.org/10.71435/742327

Keywords:

Currency Risk, Foreign Investor, Modern Portfolio Theory, Portfolio Optimisation, Sharpe Ratio

Abstract

Foreign investors price Indonesian assets in U.S. dollars (USD), not rupiah, and that distinction carries weight. Between 2021 and 2024 the rupiah lost roughly 19% against the dollar while foreign capital left the equity market in waves, eroding dollar returns even when local prices held up. A portfolio built only from the Jakarta Composite Index (JCI) and the S&P 500 spreads risk across two markets yet guards against neither force. The question this paper pursues is whether gold and Bitcoin can close that gap. A four-asset portfolio of Bitcoin, gold, JCI, and the S&P 500 is assembled with all returns converted to USD, then optimised on monthly data from January 2021 to December 2024 through the Markowitz mean-variance model in Excel Solver. The Sharpe ratio serves as the objective, bound by three limits: weights sum to one, no short selling, and a 5% floor per asset. For the risk-free rate, the U.S. Treasury Bond and Indonesian Government Bond yields are blended by the optimal allocation. The resulting weights are then carried into an out-of-sample 2025 test across three management strategies. The optimal mix of 52% gold, 28% S&P 500, 15% Bitcoin, and 5% JCI reaches a Sharpe ratio of 0.812. The equity-only portfolio manages only 0.227, the S&P 500 alone 0.615, and the JCI, once measured in dollars, sinks to −0.360. Quarterly rebalancing earns the most in 2025, at 37.85%. The contribution is a dollar-based allocation template that moves past the rupiah-denominated evidence dominating earlier Indonesian studies.

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