IDEAS home Printed from https://ideas.repec.org/a/ibf/ijbfre/v4y2010i1p85-97.html
   My bibliography  Save this article

The Performance Of Asset Pricing Models Before, During, And After An Emerging Market Financial Crisis: Evidence From Indonesia

Author

Listed:
  • Erie Febrian
  • Aldrin Herwany

Abstract

Due to the dynamic nature of stock market risk and return measurement, financial practitioners and academics are continuously concerned with the development of asset pricing studies. Moreover, validity of the existing theories in the recent Asian financial crises years stimulates additional challenges to the discipline. This paper investigates the ability of Capital Asset Pricing Model (CAPM) and Arbitrage Pricing Theory (APT) in explaining excess returns of portfolios of stocks traded on the Jakarta Stock Exchange (JKSE). The study assesses the theories using data from 3 different periods: the pre-crisis period (1992-1997), the crisis period (1997-2001), and the post-crisis period (2001-2007). Our finding show that Beta does not single handedly explain portfolio excess returns. The, APT is able to explain the portfolio excess returns in the observation periods were excess return averages are found to be consistently negative. We also find that spread between the central bank rate and commercial bank rate is a constantly significant variable, while risk-premiums vary over the observation periods.

Suggested Citation

  • Erie Febrian & Aldrin Herwany, 2010. "The Performance Of Asset Pricing Models Before, During, And After An Emerging Market Financial Crisis: Evidence From Indonesia," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 4(1), pages 85-97.
    • Handle: RePEc:ibf:ijbfre:v:4:y:2010:i:1:p:85-97
    as

    Download full text from publisher

    File URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v4n1-2010/IJBFR-V4N1-2010-6.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Roll, Richard, 1995. "An empirical survey of Indonesian equities 1985-1992," Pacific-Basin Finance Journal, Elsevier, vol. 3(2-3), pages 159-192, July.
    2. Cesare Robotti, 2002. "Asset returns and economic risk," Economic Review, Federal Reserve Bank of Atlanta, vol. 87(Q2), pages 13-25.
    3. Ravi Jagannathan & Zhenyu Wang, 1993. "The CAPM is alive and well," Staff Report 165, Federal Reserve Bank of Minneapolis.
    4. Chen, Nai-Fu & Roll, Richard & Ross, Stephen A, 1986. "Economic Forces and the Stock Market," The Journal of Business, University of Chicago Press, vol. 59(3), pages 383-403, July.
    5. He, Jia & Ng, Lilian K, 1994. "Economic Forces, Fundamental Variables, and Equity Returns," The Journal of Business, University of Chicago Press, vol. 67(4), pages 599-609, October.
    6. Fama, Eugene F & French, Kenneth R, 1996. "The CAPM Is Wanted, Dead or Alive," Journal of Finance, American Finance Association, vol. 51(5), pages 1947-1958, December.
    7. Fama, Eugene F & French, Kenneth R, 1995. "Size and Book-to-Market Factors in Earnings and Returns," Journal of Finance, American Finance Association, vol. 50(1), pages 131-155, March.
    8. Fama, Eugene F, 1991. "Efficient Capital Markets: II," Journal of Finance, American Finance Association, vol. 46(5), pages 1575-1617, December.
    9. Roll, Richard & Ross, Stephen A, 1994. "On the Cross-sectional Relation between Expected Returns and Betas," Journal of Finance, American Finance Association, vol. 49(1), pages 101-121, March.
    10. Shanken, Jay, 1982. "The Arbitrage Pricing Theory: Is It Testable?," Journal of Finance, American Finance Association, vol. 37(5), pages 1129-1140, December.
    11. Fang, Hsing & Lai, Tsong-Yue, 1997. "Co-Kurtosis and Capital Asset Pricing," The Financial Review, Eastern Finance Association, vol. 32(2), pages 293-307, May.
    12. Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 607-636, May-June.
    13. Mei, Jianping, 1993. "Explaining the Cross-Section of Returns via a Multi-Factor APT Model," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(3), pages 331-345, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ahmad Faisol & Sulaeman Rahman Nidar & Aldrin Herwany, 2022. "The Analysis of Risk and Return Using Sharia Compliance Assets Pricing Model with Profit-Sharing Approach (Mudharabah) in Energy Sector Company in Indonesia," JRFM, MDPI, vol. 15(10), pages 1-14, September.
    2. Hui, Eddie C.M. & Chen, Jia, 2012. "Investigating the change of causality in emerging property markets during the financial tsunami," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(15), pages 3951-3962.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Erie Febrian & Aldrin Herwany, 2009. "The Performance Of Asset Pricing Models Before, During, And After Financial Crisis In Emerging Market: Evidence From Indonesia," Working Papers in Business, Management and Finance 200902, Department of Management and Business, Padjadjaran University, revised Feb 2009.
    2. Fernando Rubio, 2005. "Eficiencia De Mercado, Administracion De Carteras De Fondos Y Behavioural Finance," Finance 0503028, University Library of Munich, Germany, revised 23 Jul 2005.
    3. Don U.A. Galagedera, 2004. "A survey on risk-return analysis," Finance 0406010, University Library of Munich, Germany.
    4. Fernando Rubio, 2005. "Estrategias Cuantitativas De Valor Y Retornos Por Accion De Largo," Finance 0503029, University Library of Munich, Germany.
    5. Attiya Yasmeen Javid, 2000. "Alternative Capital Asset Pricing Models: A Review of Theory and Evidence," PIDE Research Report 2000:3, Pakistan Institute of Development Economics.
    6. Martin Wallmeier, 2000. "Determinanten erwarteter Renditen am deutschen Aktienmarkt — Eine empirische Untersuchung anhand ausgewählter Kennzahlen," Schmalenbach Journal of Business Research, Springer, vol. 52(1), pages 27-57, February.
    7. David Hirshleifer, 2001. "Investor Psychology and Asset Pricing," Journal of Finance, American Finance Association, vol. 56(4), pages 1533-1597, August.
    8. M. Ariff & Vijaya B. Marisetty, 2012. "Panel data approach to identify factors correlated with equity market risk premiums in developed and emerging markets," Quantitative Finance, Taylor & Francis Journals, vol. 12(1), pages 107-118, April.
    9. Evangelos Karanikas & George Leledakis & Elias Tzavalis, 2006. "Structural Changes in Expected Stock Returns Relationships: Evidence from ASE," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(9‐10), pages 1610-1628, November.
    10. Committee, Nobel Prize, 2013. "Understanding Asset Prices," Nobel Prize in Economics documents 2013-1, Nobel Prize Committee.
    11. Stanley, H.E. & Gopikrishnan, P. & Plerou, V. & Amaral, L.A.N., 2000. "Quantifying fluctuations in economic systems by adapting methods of statistical physics," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 287(3), pages 339-361.
    12. Basher, Syed A. & Sadorsky, Perry, 2006. "Oil price risk and emerging stock markets," Global Finance Journal, Elsevier, vol. 17(2), pages 224-251, December.
    13. Boons, M.F., 2014. "Sorting out commodity and macroeconomic risk in expected stock returns," Other publications TiSEM 1ebdac58-bf37-499d-8835-1, Tilburg University, School of Economics and Management.
    14. Dar-Hsin Chen & Chun-Da Chen & Su-Chen Wu, 2014. "VaR and the cross-section of expected stock returns: an emerging market evidence," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 15(3), pages 441-459, June.
    15. Allen, D. E. & Cleary, F., 1998. "Determinants of the cross-section of stock returns in the Malaysian stock market," International Review of Financial Analysis, Elsevier, vol. 7(3), pages 253-275.
    16. Michailidis, G., 2009. "Multivariate methods in examining macroeconomic variables effect on Greek stock market returns, 1997-2004," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 9(1).
    17. Attiya Y. Javed, 2000. "Alternative Capital Asset Pricing Models: A Review of Theory and Evidence," PIDE-Working Papers 2000:179, Pakistan Institute of Development Economics.
    18. Stefano Gubellini, 2014. "Conditioning information and cross-sectional anomalies," Review of Quantitative Finance and Accounting, Springer, vol. 43(3), pages 529-569, October.
    19. Eero Pätäri & Timo Leivo, 2017. "A Closer Look At Value Premium: Literature Review And Synthesis," Journal of Economic Surveys, Wiley Blackwell, vol. 31(1), pages 79-168, February.
    20. Roman Mestre, 2021. "A wavelet approach of investing behaviors and their effects on risk exposures," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-37, December.

    More about this item

    Keywords

    CAPM; APT; Financial Crisis;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ibf:ijbfre:v:4:y:2010:i:1:p:85-97. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Mercedes Jalbert (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.