The Impact of the size effect on the efficiency level of a financial market :: Illustration the Jakarta Stock Market (January 1999-December 2004

HARTONO, Siska, Gerard Kadyss, Prof

2005 | Tesis | Magister Manajemen

Based on the Efficient Market Hypothesis, there are three form of the EMH. There are weak form of efficiency, semi-strong form of efficiency, and strong form of efficiency. Efficient market hypothesis can be used by investors to provide the possibility of stocks price to achieve their equilibrium price faster based on the available information in the market. In an efficient market there is no chance, in long term period, for investors to earn abnormal return. The faster market reacts to new information, the more efficient is the market. Regarding with the weak form efficient market hypothesis, the test of EMH would be rejected the hypothesis if the finding shows that the relevant information enable to make the forecasting of the return that could be generated by the investors in the capital market. The purpose of this research is to investigate the impact of the size effect on the efficiency level of a financial market. This study uses Jakarta Stock Exchange as an illustration to find out the efficiency level of this financial market by using monthly stock prices from 50 companies and constructing into 6 size portfolios during the period January 1999 to December 2004. The results show the impact of size effect on the efficiency levels of JSX shows the evidence that the degree of efficiency of Jakarta stock market is not efficient in the weak form hypothesis. Moreover, the longer the period of the lag, it shows the evidence that JSX is weak form for all portfolios, except for single portfolio.

Kata Kunci : Pasar Modal,Efisiensi,Size Effect, Efficient Market Hypothesis, Weak Form EMH, the size effect, auto correlation