Empirical Study of Fama-French Three-factor Model and Carhart Four-factor Model in Indonesia

Abstract

This research compares the performances of the Fama-French three-factor and Carhart four-factor models on the Indonesian stock market. It employs ordinary least square (OLS) with monthly time-series data from July 2005 to June 2015. The results document that the Carhart four-factor model performs better than Fama-French three-factor model in explaining the portfolio excess returns in Indonesia. The momentum factor displays a weak effect on the portfolio excess returns. The results are robust to the equally-weighted method.