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

See all articles by Rowland Bismark Pasaribu

Rowland Bismark Pasaribu

NAMOURA Research Institute; Gunadarma University

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

Pasaribu, Rowland Bismark, Stock Portfolio with Fama-French Model in Indonesian Stock Exchange (February 2009). Journal of Accounting & Business, Vol. 9, No. 1, pp. 1-12, February 2009, Available at SSRN: https://ssrn.com/abstract=1863646

Rowland Bismark Pasaribu (Contact Author)

NAMOURA Research Institute ( email )

Jl. Komando III/2 No.37
Setiabudi
South Jakarta, DKI Jakarta 12920
Indonesia

Gunadarma University ( email )

Margonda Raya 100
Pondokcina, Depok
Jakarta, West Java 62-16424
Indonesia

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