The Validity of the capm :: The Case from JSX
KARAMBE, Edwin, Dr. Eduardus Tandelilin, MBA
2002 | Tesis | Magister Manajemen-
The Capital Asset Pricing Model (CAPM) relates the expected rate of return for any security or portfolio to the relevant risk or market risk. It is a theory about the way assets are priced in relation to their risks. The central prediction of CAPM is that only nondiversifiable risk as measured by beta will deserve some risk compensation in the market and the higher the risk of a stock the higher the return should be. However, this research presents some evidence that the correlation between beta and returns in JSX for July 1992 — June 2000 is flat and it is indistinguishable from zero. By forming portfolios sorted based on (1) stock pre-ranking betas; (2) firm size (market equity); (3) size and then on pre-ranking beta; (4) firm book-to-market equity ratios; (5) size and then on book-to-market equity and using all listed firms on JSX that met sample requirements during the period of observation, this study confirms that two of the most investigated variables in explaining stock returns, size and book-to-market equity, should be included in the stock valuation as sources of risks. Interestingly, the results from the cross-sectional regressions conducted on normally distributed data (variables), indicate that the negative size effect may be driven for the most part by a small number of extreme observations.
Kata Kunci : Manajemen Modal, Saham
