Bambang Sutrisno, Irwan Adi Ekaputra


The main purpose of this study is to evaluate and compare the performances of the Fama-French three- (FF3) and five-factor (FF5) models in the Indonesia stock market. This study also examines whether book-to-market factor (HML) is redundant in explaining the portfolio excess returns in Indonesia. This study employs asset pricing factor of the 2 x 3 sorts and excess returns of 25 Size-B/M, 25 Size-OP, dan 25 Size-Inv portfolios as dependent variables. This study employs Ordinary Least Square (OLS) with monthly time-series data from 2000 to 2015. Based on the average adjusted R2 from the two models, FF5 explains portfolio excess return variations better than FF3, although the profitability and investment factors only display weak effect on the excess returns. If we refer to Mertons (1973) zero-intercept criterion, the both models are not valid in Indonesia, because most intercepts are significant in each set of 25 portfolios. We also find that book-to-market factor is redundant in describing the variation of returns in Indonesia. The test of intercept difference between Indonesia and The US indicates that there are differences of abnormal return and market efficiency in both countries.


Fama-French five-factor model; asset pricing; Indonesia stock market


Black, F., Jensen, M.C., Scholes, M. 1972. The Capital Asset Pricing Model: Some Empirical Tests. In Studies in the Theory of Capital Markets, edited by M.C. Jensen. New York: Praeger.

Cakici, N., Fabozzi, F.J. & Tan, S. 2013. Size, Value, and Momentum in Emerging Market Stock Returns, Emerging Markets Review, 16: 46-65.

Chiah, M., Chai, D. & Zhong, A. 2015. A Better Model? An Empirical Investigation of the Fama-French Five-Factor Model in Australia. Unpublished Working Paper.

Dimson, E. 1979. Risk Measurement when Shares are Subject to Infrequent Trading, Journal of Financial Economics, 7: 197-226.

Fama, E.F. & French, K.R. 1992. The Cross-Section of Expected Stock Returns, Journal of Finance, 47(2): 427-465.

Fama, E.F. & French, K.R. 1993. Common Risk Factors in the Returns on Stocks and Bonds, Journal of Financial Economics, 33: 3-56.

Fama, E.F. & French, K.R. 1996. Multifactor Explanations of Asset Pricing Anomalies, Journal of Finance, 51: 55-84.

Fama, E.F. & French, K.R. 1998. Value Versus Growth: The International Evidence, Journal of Finance, 53: 1975-1999.

Fama, E.F. & French, K.R. 2012. Size, Value, and Momentum in International Stock Returns, Journal of Financial Economics, 105: 457-472.

Fama, E. F. & French, K.R. 2015a. A Five-Factor Asset Pricing Model, Journal of Financial Economics, 116: 1-22.

Fama, E. F. & French, K.R. 2015b. International Tests of a Five-Factor Asset Pricing Model. Unpublished Working Paper.

Griffin, J.M. & Lemmon, M.L. 2002. Book-to-Market Equity, Distress Risk, and Stock Returns, Journal of Finance, 57: 2317-2336.

IDX Statistics 2015. www.idx.co.id. (Diakses Tanggal 30 Maret 2016).

Lettau, M. & Ludvigson, S. 2001. Resurrecting the (C)CAPM: A Cross-Sectional Test when Risk Premia are Time-Varying, Journal of Political Economy, 109: 1238-1287.

Lettau, M. & Ludvigson, S. 2006. Do the Fama-French Factors Proxy for Innovations in Predictive Variables?, Journal of Finance, 61: 581-611.

Liew, J., Vassalou M. 2000. Can Book-to-Market, Size and Momentum be Risk Factors that Predict Economic Growth?, Journal of Financial Economics, 57(2): 221-245.

Lintner, J. 1965. The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets, Review of Economics and Statistics, 47(1): 13-37.

Lo, A.W. & MacKinlay, A.C. 1990. An Econometric Analysis of Nonsynchronous Trading, Journal of Econometrics, 45: 181-211.

Merton, R. 1973. An Intertemporal Capital Asset Pricing Model, Econometrica, 41(5): 867-887.

Newey, W.K. & West K.D. 1987. A Simple Positive-Definite Heteroscedasticity and Autocorrelation-Consistent Covariance Matrix, Econometrica, 55: 703-708.

Sharpe, W.F. 1964. Capital Asset Prices: A Theory of Market Equilibrium Under Conditions of Risk, Journal of Finance, 19(3): 425-442.

Full Text: pdf


  • There are currently no refbacks.

rsz_8th_ifma rsz_6th_perbanas_conference rsz_the_6th_indonesian_finance_association_international_conference

Journal of Finance and Banking

Diploma Program of Banking and Finance
Faculty of Economics and Business University of Merdeka Malang

Mailing Address:

2nd-floor Banking and  Finance Building, Terusan Raya Dieng Street No.57 Malang, 65146, East Java, Indonesia
Phone/WhatsApp: +628123321664; Fax. +62 341 580511

Creative Commons License
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.