Stock Portfolio with Fama-French Model in Indonesian Stock Exchange
Journal of Accounting & Business, Vol. 9, No. 1, pp. 1-12, February 2009
23 Pages Posted: 17 Jun 2011
Date Written: February 2009
Abstract
This study examines empirically the Fama and French three factor model of stock returns using Indonesian data over 2003-2006 period. Specifically, it examines the behavior of stock prices, in relation to size (market equity, ME) and book-to-market ratio. The major objective of this study is to provide evidence that would contribute to the effort of explaining the 3FM in an emerging market. Our findings reveal a significant relationship between market, size and book-to-market equity factors and expected stock returns in the Indonesian market. The empirical results confirm that even the Fama and French (1993) three factor model holds for the Indonesian Stock Exchange and more robust than CAPM in non-financial stock, in portfolio level still result bad performance.
Keywords: CAPM, Fama and French Three Factor Model, Expected Return, Market Capitalization, Book-to-Market Ratio, Coefficient of Determination
JEL Classification: G11, G12, G14
Suggested Citation: Suggested Citation
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