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Pemilihan Model Asset Pricing
[Asset pricing model selection: Indonesian Stock Exchange]

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  • Pasaribu, Rowland Bismark Fernando

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.

Suggested Citation

  • Pasaribu, Rowland Bismark Fernando, 2010. "Pemilihan Model Asset Pricing
    [Asset pricing model selection: Indonesian Stock Exchange]
    ," MPRA Paper 36978, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:36978
    as

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    File URL: https://mpra.ub.uni-muenchen.de/36978/1/MPRA_paper_36978.pdf
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    File URL: https://mpra.ub.uni-muenchen.de/39817/1/MPRA_paper_39817.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Expected return saham; CAPM; TFPM; FFPM; Skewness; Kurtosis;

    JEL classification:

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

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