Empirical Test of Fama and French Five Factor Model in Indonesia

The purpose of this empirical test Fama and French Five Factor in Indonesia has the goal to see if the model assest pricing in Indonesia is complex or simpler. This will contribute both to internal corporate, securities companies or investment firms, academia as well as for regulators. Assets pricing model is growing over the time. This developement always see the shortcomings inherent in the old model of assets pricing. Fama French Three Factor model see that there is more risk in addition to market risk premium that can affect a stock's excess return, such as firm size and book to market ratio. Carhart Four Factor Model that adds one more variable that can affect the momentum of the excess return. And Fama French Five Factor Model that adds two other variables that can affect the excess return of a stock company, the operating profitability and investment. And also, this empirical test use two different portfolio forming method, which are equally weighted portfolio and value weighted portfolio. Through this empirical test, it can be seen whether the model of pricing assets in Indonesia is both simple or more complex.

Autorentext

Rian Munanjar has recently graduated from Faculty of Economics and Business, Universitas Indonesia. He has previously worked as Junior Associate at SDP Consulting Indonesia. His academic work, titled: "Empirical Test of Fama and French Five Factor Model in Indonesia", is new perspective of assets pricing model in developing country, Indonesia.