Asset Pricing Model Selection

Jurnal Akuntansi dan Manajemen, Vol. 21, No. 3, pp. 217-230, December 2010

30 Pages Posted: 13 May 2011 Last revised: 22 Nov 2017

See all articles by Rowland Bismark Pasaribu

Rowland Bismark Pasaribu

Gunadarma University; ABFI Institute Perbanas

Date Written: December 13, 2010

Abstract

The Capital Asset Pricing Model (CAPM) has dominated finance theory for over thirty years; it suggests that the market beta alone is sufficient to explain stock returns. However evidence shows that the cross-section of stock returns cannot be described solely by the one-factor CAPM. Therefore, the idea is to add other factors in order to complete the beta in explaining the price movements in the stock exchange. The Arbitrage Pricing Theory (APT) has been proposed as the first multifactor successor to the CAPM without being a real success. Later, researchers support that average stock returns are related to some fundamental factors such as size, book-to-market equity and momentum. Alternative studies come as a response to the poor performance of the standard CAPM. They argue that investors choose their portfolio by using not only the first two moments but also the skewness and kurtosis. The main contribution of this paper is comparison between the CAPM, the Fama and French asset pricing model (TPFM) and the Four Factor Pricing Model (FFPM) adding the third and fourth moments to calculate expected return of non-financial Indonesian listed firms. The selection of the best model is based on the highest coefficient of determination. The kurtosis-FFPM turned out to be the best model.

Keywords: Asset Pricing, Fama-French, CAPM, TFPM, FFPM, Skewness, Kurtosis

JEL Classification: G11, G12, G31

Suggested Citation

Pasaribu, Rowland Bismark, Asset Pricing Model Selection (December 13, 2010). Jurnal Akuntansi dan Manajemen, Vol. 21, No. 3, pp. 217-230, December 2010. Available at SSRN: https://ssrn.com/abstract=1840184

Rowland Bismark Pasaribu (Contact Author)

Gunadarma University ( email )

Margonda Raya 100
Pondokcina, Depok
Jakarta, West Java 62-16424
Indonesia

ABFI Institute Perbanas ( email )

Perbanas Street
Karet Kuningan, Setiabudi
Jakarta Selatan, DKI Jakarta 12940
Indonesia

Register to save articles to
your library

Register

Paper statistics

Downloads
281
rank
106,100
Abstract Views
1,160
PlumX Metrics