Is More Always Better? An Empirical Investigation of the CAPM and the Fama-French Three-Factor Model in Indonesia

n International Conference on Economics, Business and Economic Education 2018, KnE Social Sciences, pages 454–468

15 Pages Posted: 24 Jan 2019

See all articles by Bambang Sutrisno

Bambang Sutrisno

Universitas Muhammadiyah Jakarta

Rifzaldi Nasri

affiliation not provided to SSRN

Date Written: October 22, 2018

Abstract

This study investigates the performance of the CAPM and the Fama-French three-factor model in Indonesia. This research employs time-series regression with monthly data from 2005 to 2015. The results reveal that the Fama-French three-factor model performs better than the CAPM in describing the excess return of stock portfolios in Indonesia. This result is robust to the equally-weighted method and the impact of the global financial crisis. Although the Fama-French three-factor model is superior to the CAPM, the results indicate that there are other factors to consider in determining asset pricing models that better capture stock return variations in the Indonesian stock market. This research implies that the investors should consider Fama-French factors when making their investment decisions. Furthermore, the investors should evaluate another factor impact the average returns.

Keywords: Asset Pricing, CAPM, Three-Factor Model, Size Factor, Book-to-Market Factor

JEL Classification: G12

Suggested Citation

Sutrisno, Bambang and Nasri, Rifzaldi, Is More Always Better? An Empirical Investigation of the CAPM and the Fama-French Three-Factor Model in Indonesia (October 22, 2018). n International Conference on Economics, Business and Economic Education 2018, KnE Social Sciences, pages 454–468, Available at SSRN: https://ssrn.com/abstract=3314686

Bambang Sutrisno (Contact Author)

Universitas Muhammadiyah Jakarta ( email )

Jl. KH. Ahmad Dahlan, Cirendeu, Ciputat
Jakarta, ID Jakarta
Indonesia
021-7402623 (Phone)

HOME PAGE: http://febumj.ac.id/

Rifzaldi Nasri

affiliation not provided to SSRN

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