| Summary: | This research aims to test the validity of CAPM beta model, Fama �
French�s three-factor model, and Carhart�s four-factor model to explain the
relation between risk and return in the Indonesian stock market. CAPM beta
model proxied by measuring the influence of beta to stock returns. Fama �
French�s three-factor model proxied by measuring the influence of beta, size, and
book to market equity ratio to stock returns. Carhart�s four-factor model proxied
by measuring the influence of beta, size, book to market equity ratio, and
momentum to stock returns. Samples used in this study is all companies listed on
the Indonesia Stock Exchange (IDX) with 2006 up to 2011 as the observation
period. The total sample was different every observations year with the aim, that
data used could describe the real market conditions, are determined by the
method of purposive sampling. This study uses an ordinary least square to
examine the effect of beta, size, book to market equity, and momentum to stock
returns. The results of this study indicate that the CAPM beta model, Fama �
French�s three-factor model, and Carhart�s four-factor model are valid for using
in the Indonesian stock market and able to explain the relation between risk and
return in the Indonesian stock market.
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