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Does The 6-Factor Model Work Better in The Indonesian Capital Market

In: Proceedings of the 8th Global Conference on Business, Management, and Entrepreneurship (GCBME 2023)

Author

Listed:
  • Dwi Darma

    (University of Singaperbangsa Karawang)

  • Ikaputera Waspada

    (University of Singaperbangsa Karawang)

  • Maya Sari

    (University of Singaperbangsa Karawang)

Abstract

Researchers have made various efforts to discover the best relationship between systematic risk and portfolio returns, and one of these efforts is the Fama and French model. This research aimed to examine whether the latest version, the Fama and French 6-factor model, can outperform the previous version, the Fama and French 5-factor model, using the Kompas 100 Index as a proxy. The method used is a two-stage multiple regression with portfolio formation based on SMB, HML, RMW, CMA, and UMD criteria. The research results indicate that the Fama and French 6-factor model has not yet been able to outperform the Fama and French 5-factor model with the 2x3 portfolio construction. However, it can outperform the Fama and French 5-factor model with the 2x2 portfolio construction because adding one risk factor reduces the variation in risk concerning the variation in portfolio returns formed.

Suggested Citation

  • Dwi Darma & Ikaputera Waspada & Maya Sari, 2024. "Does The 6-Factor Model Work Better in The Indonesian Capital Market," Advances in Economics, Business and Management Research, in: Ratih Hurriyati & Lili Adi Wibowo & Sulastri Sulastri & Lisnawati Lisnawati (ed.), Proceedings of the 8th Global Conference on Business, Management, and Entrepreneurship (GCBME 2023), pages 162-172, Springer.
    • Handle: RePEc:spr:advbcp:978-94-6463-443-3_24
    DOI: 10.2991/978-94-6463-443-3_24
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