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Is Indonesia's stock market different when it comes to predictability?

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  • Sharma, Susan Sunila
  • Narayan, Paresh Kumar
  • Thuraisamy, Kannan
  • Laila, Nisful

Abstract

We construct a unique dataset consisting of 342 firms aimed at stock return predictability. Using seven predictors, we show that unlike in conventional markets, it is capital expenditure that is the most successful predictor of returns. However, the overall evidence of out-of-sample predictability when using other conventional return predictors is weak. Capital expenditure-based forecasting models do lead to profits also although these are small. This tends to imply that for markets that are at the nascent stages of development, such as Indonesia, capital expenditure might have a role to play in shaping the market. Our results are in sharp contrast to the literature on emerging markets.

Suggested Citation

  • Sharma, Susan Sunila & Narayan, Paresh Kumar & Thuraisamy, Kannan & Laila, Nisful, 2019. "Is Indonesia's stock market different when it comes to predictability?," Emerging Markets Review, Elsevier, vol. 40(C), pages 1-1.
    • Handle: RePEc:eee:ememar:v:40:y:2019:i:c:8
    DOI: 10.1016/j.ememar.2019.100623
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    References listed on IDEAS

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    3. Li, Nanqi & Wei, Chishen & Zhang, Linti, 2023. "Risk factors in the Indonesian stock market," Pacific-Basin Finance Journal, Elsevier, vol. 82(C).
    4. Shabir Mohsin Hashmi & Muhammad Akram Gilal & Wing-Keung Wong, 2021. "Sustainability of Global Economic Policy and Stock Market Returns in Indonesia," Sustainability, MDPI, vol. 13(10), pages 1-18, May.
    5. Paresh Kumar Narayan & Syed Aun R. Rizvi & Ali Sakti, 2022. "Did green debt instruments aid diversification during the COVID-19 pandemic?," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-15, December.
    6. Sharma, Susan Sunila & Thuraisamy, Kannan & Madyan, Muhammad & Laila, Nisful, 2019. "Evidence of price discovery on the Indonesian stock exchange," Economic Modelling, Elsevier, vol. 83(C), pages 2-7.

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