Test of Arbitrage Pricing Theory: Evidence from Indonesia.

Author(s)

Jacinta Winarto , Ernie Tisnawati Sule , Ria Ratna Ariawati- ,

Download Full PDF Pages: 29-40 | Views: 293 | Downloads: 86 | DOI: 10.5281/zenodo.3463923

Volume 5 - March 2016 (03)

Abstract

This study uses quarterly data, from March 2009 to December 2013 on the 25 liquid stocks listed in the Indonesian Stock Exchange. The data are collected from the Indonesian Capital Market Directory and from the Indonesian Central Bank. The aims from this study are to investigate whether variations in stock returns are sufficiently explained by the Arbitrage Pricing Theory (APT). To achieve this objective, the study utilized four variables. In addition, the study uses prespecifying macrovariables approach and added gold price as an independent variable. The procedure used a two stage regression. The results indicate that the APT model is quite robust and only inflation and exchange rate have significant and negative effects on the variations in the stock. The theoritical contribution is developing APT which is right for Indonesia and the practical implication is an information for the government to make a policy based on the significant variables and for the investor to be able to consider what factors affect the return share and to prepare to overcome the effect.

Keywords

Liquid stocks, Arbitrage Pricing Theory, prespecifying macrovariables approach. 

References

  1. Arman, Agus. (2008). Surprise Faktor Makroekonomi Sebagai Penjelas Perubahan Return Pasar Saham di Bursa Efek Indonesia. National Conference on Management Research 2008. Makasar, 27 November 2008, ISBN:979-442-242-8
  2. Attaulah, Ali. (2008). Macroeconomic Factors, the APT and the Istanbul Stock Market. International Research Journal of Finance and Economics ISSN 1450-2887 Issue 22 EuroJournals Publishing Inc.
  3. Chen, Nai-Fu, Roll, Richard R., & Ross, Stephen A. (1986). Economic Forces and the Stock Market. Journal of Business, 59(3), 383-404.
  4. Chen, S.J., & Jordan, B.D. (1993). Some Empirical Tests in the Arbitrage Pricing Theory: Macrovariables vs. Derived Factors. Journal of Banking and Finance, 17(1), 65-89.
  5. Elton, Edwin J., Gruber, Martin J. & Mei, Jianping. (1994). Cost of Capital Using Arbitrage Pricing Theory: A Case Study of Nine New York Utilities. Financial Markets, Institution and Instruments, 3, 46-73.
  6. Fabio, Panetta. 2001. The Stability of the Relation Between the Stock Market and Macroeconomic Forces. Temi di discussione (Economic Working Papers). Bank of Italy, Economic Research Department.
  7. Groenewold, N., & Fraser, P. (1997). Share Prices and Macroeconomic Factors. Journal of Business and Accounting, 24 (9), 1367-1381.
  8. Murtianingsih. (2012). Variabel Ekonomi Makro & Indeks Harga Saham Gabungan. Jurnal Manajemen dan Akuntansi. Vol.1, No. 3, Desember 2012.
  9. Paavola, Mauri. (2006). Tests of the Arbitrage Pricing Theory: Using Macroeconomic Variables in the Russian Equity Market. Bachelor’s Thesis. Department of Business Administration Section of Accounting and Finance, Lappeenranta University of Technology.
  10. Premananto, Gancar Candra; Madyan, Muhammad. (2004). Perbandingan Keakuratan Capital Aset Pricing Model dan Arbitrage Pricing Theory dalam Memprediksi Tingkat Pendapatan Saham Industri Manufaktur Sebelum dan Semasa Krisis Ekonomi. Jurnal Penelitian Dinamika Sosial, Vol. 5 No. 2 Agustus 2004: 125-139.
  11. Ramadan, Imad Z. (2012). The Validity of the Arbitrage Pricing Theory in the Jordanian Stock Market. International Journal of Economics and Finance 4.5, 177-185.
  12. Suartini, Ni Kadek Ayu; Mertha, I Made. (2013). Perbandingan CAPM dengan APT dalam Memprediksi Return Saham. E-Journal Universitas Udayana, Vol. 2, No.3, Maret 2013.
  13. Widodo, Purwanto. (2007). Pengaruh Pergerakan Variabel Ekonomi Makro Terhadap Return IHSG dan LQ45. Jurnal Madani Edisi I/ Mei 2007.

Cite this Article: