Microeconomic Research Articles

Comprehensive Analysis of Capital Asset Pricing Model and Arbitrage Pricing Theory in Stock Investment Decision Making

The increasingly advanced development of technology and the phenomenon of the Covid-19 outbreak, which has caused most employees to be affected by Work From Home, has led most people, especially the millennial generation or people under the age of 30, to be interested in allocating their excess funds into stock investments. This study aims to analyze the development of a multi-factor CAPM model by including volatility as an additional factor: a new approach in asset pricing with a case study of companies listed on the Indonesia Stock Exchange included in the LQ45 Index for the 2020-2023 period. The independent variables used in this study are Risk Premium (Beta), Company Size (SMB), book-to-market ratio (HML), and Stock Price Volatility. In contrast, the dependent variable used in this study is proxied by Stock Return with Excess Return. The population in this study consists of 45 companies. The sampling method uses a Purposive Sampling Technique. The analysis method used in this study is Multiple Linear Regression. The result of the study shows that the Risk Premium and Company Size variables partially have a significant positive effect on Stock Returns. The Book to Market Ratio variable partially has a negative but not significant impact on Stock Returns. Meanwhile, the Stock Price Volatility variable has a positive but insignificant effect on Stock Returns. The independent variables in this study can explain 88,61% of the factors affecting Stock Returns, while 11,39% is explained by other factors not researched in this study.

Relevansi Pemikiran Abu Ubayd dan Al-Syaibani dalam Perekonomian Indonesia

This paper studies the microeconomic theories of Abu Ubayd and Al-Syaibani. Although these two figures have different views on how to deal with economic problems, especially microeconomics, both have the same goal of wanting to improve the welfare of the people and get the pleasure of Allah SWT. The writing of Abu Ubayd and Al-Syaibani's microeconomic theory aims to show the public that the differences of opinion of Islamic economic thinkers are a good attitude because it is part of science and can be applied in real life. This journal uses a qualitative approach. The type of research conducted is library research. Library research is a type of research in which all data comes from written materials such as books, manuscripts, journals, and related documents. Abu Ubayd argues that international trade that is too free, namely by imposing zero tariff fees, will hinder the country's economic growth because in Islam there is no concept of free trade (even though the imported goods are purchased goods). As-Syaibani's economic thinking is used to build employment or entrepreneurship today, where many MSMEs are productive and become indicators of the nation's economy.

Bob Ekelund and the method of price theory

Bob Ekelund and the method of price theory

The Choice of Optimal Risk Retention Forms from the Perspective of Asymmetric Information

The risk retention rule requires issuers to retain part of their securities and share the interests of investors. The different forms of risk retention chosen lead to different financing effects of enterprises. In order to explore the optimal choice of risk retention forms in different environments, according to asset pricing theory and asset securitization practice combined with risk retention rules, we obtain issuer payoff models under three forms of risk retention. Through numerical simulation and economic meaning analysis, we draw the following conclusions: hybrid retention can not only alleviate the side effects of horizontal retention but also reduce the proportion of vertical retention, which can improve the issuer payoffs; horizontal retention is more suitable for situations where asset pool losses are small or asset volatility is large, while vertical retention is the opposite. Therefore, we suggest that securities issuers should consider the assets of enterprises and macroeconomic situations to choose the optimal form of risk retention.

Empowering farmer community with technology modernisation to improve rice farming performance through demonstration farms in East Java, Indonesia

Purpose Rice is a strategic commodity and staple food; thus, rice productivity should grow faster than the population. A public agricultural agency launched technology modernisation to improve rice farm performance. This study aims to assess the impact of technology modernisation on rice farming performance and evaluate farmer acceptance of such technology. Design/methodology/approach This study was conducted in 2023-2024, based on selected demonstration farms (demfarm) carried out during 2021-2022 in East Java, Indonesia, one of the rice bowls. Microeconomic theory of production and the double-differences approach were used as fundamental analyses. Farmers were purposively selected to participate in the demfarm. For comparison, farmers with existing technology adjacent to the demfarm were chosen accordingly. Rice production is considered an economic performance indicator, and factors related to socio-demographic and technical aspects were conceptualised using innovation and diffusion theory. Findings The results of demfarm were apparent. Technology modernisation improved rice farming’s economic performance. Farmer acceptance of such technology was relatively high at the first stage. There was no conflict between technology and local culture and norms. The technological package will likely be disseminated to farmers after adequate socialisation. Research limitations/implications This study engaged farmer innovators and early adopters in the demonstration farm. This needs more actions from farmers who are not categorised as innovators and early adopters, which dominate the farmer population. Practical implications Extension officials need field guidance to ensure continual technology adoption because of technology complexity. Originality/value The originality of the study is based on a field experiment and direct observation throughout a crop cycle, and the analysis is established using a solid theory and analytical framework.

IN DEFENSE OF MISES’S THREEFOLD DIVISION OF ECONOMIC GOODS

Mises divides economic goods into three categories: consumers’ goods, capital good, and medium of exchange (money). Barnett & Block (2005) argue that exchange is a form of production, and there are only two types of goods, consumers’ goods and capital goods, and consequently, money is a capital goods. Howden (2016) argues for adding a fourth category of economic goods: non-monetary financial assets. The purpose of this paper is to defend Mises’s trichotomy and to clarify that the treatment of the taxonomy of economic goods must always be subjected to the test of the objectives and scope of catallactics or price theory.

John R. Commons’s Two-Layered Theory of Reasonable Value

: Broadly speaking, John R. Commons’s theory of reasonable values has been interpreted as either a theory of reasonable prices or reasonable process of policy formation. Comparing newly discovered manuscripts written in 1928–1929 with Institutional Economics, this study shows that Commons’s theory of reasonable value has a two-layered structure consisting of the theory of reasonable price and the theory of reasonable process of policy formation. The essential meaning of reasonableness in the first layer is investigating all facts and giving due weight to each, whereas in the second layer is the voluntary transformation of understandings, leading to the conciliation of conflicting interests through deliberation. In this regard, his theory of reasonable value is related to debates on reasonableness and deliberative democracy in contemporary political philosophy. Then, using the analytical concepts of contemporary political philosophy, this study explains the necessity of a two-layered structure for his theory of reasonable value by clarifying where the two layers overlap and differ.

The Impact of the Last Two Presidential Periods on the Performance of the Indonesia Stock Exchanges: An Approach of Arbitrage Pricing Theory

This study aims to examine the influence of economic and non-economic macro factors on the performance of the Indonesia Stock Exchange (IDX) and the differences in their effects on the last two presidential terms using the Arbitrage Pricing Theory (APT) approach. The macro factors studied are an aggregate of 41 indicators of stock market index returns, benchmark interest rates, exchange rates, economic stability indicators, commodity prices, and corruption perception index (CPI). For the process of aggregation and identification of macro factors, this study uses Principal Component Analysis (PCA). The population studied were publicly listed companies on the IDX since October 2004 (299 companies) with a sample size of 157 companies. The observation period is 205 months: 120 months of the presidency of Susilo Bambang Yudhoyono (SBY) and 85 months of the presidency of Joko Widodo (JKW). The research design used the explanatory study method. The research model was analyzed using panel data regression. The results identified seven macro factor aggregates from 41 indicators studied: global index, macro economy, world oil prices, China index, Arabia index, inflation, and competitive resources. There was a simultaneous effect of macro factors on stock performance during the presidency of SBY and JKW. Partially, stock returns during the SBY era were positively influenced by the global index, world oil prices, the China index, the Arabian index, and inflation and negatively influenced by the macroeconomy. Meanwhile, during the JKW period, returns were positively influenced by the global, China, and Arabia indexes and inflation.

What drives user interest and purchase of virtual 3D assets? An empirical investigation of 3D model attributes and pricing dynamics

Virtual 3D assets, i.e., 3D models that form the basis of virtual environments, products, and goods, are essential for the creation of a future metaverse. However, we have limited knowledge about the market dynamics in which virtual 3D assets are traded and the indicators that influence their value and pricing − and thus the purchasing mechanisms. The present study draws on multi-attribute utility and value- and competition-informed pricing theory to determine what drives the purchase of virtual 3D assets using secondary data from the marketplace Sketchfab. The empirical analysis indicates that the sellers’ value perception of virtual 3D assets contradicts the users’ interest and that organizational sellers outperform individual sellers by relying to a higher degree on competition- and value-informed pricing. Based on our findings, we identify implications for both organizational and individual sellers to refine their pricing strategies in accordance with the unique dynamics of 3D virtual asset marketplaces.

THEORIES OF FINANCIAL INTERMEDIATION: EVALUATION AND EMPIRICAL RELEVANCE

Objective: The process of credits transfer is often facilitated by the financial intermediaries, including banks and non-bank institutions. his article offers an insight on the various theories of intermediation. The first scrutinises the various theoretical conceptualizations found in varied models which demonstrate the roles of intermediaries. The second offers a concise discuss on the relevance of the theories to current situation of intermediation and intermediaries in Nigeria. Method: The paper is based on theoretical reviews. The study used the approach to appraise the issues on financial intermediation and of intermediaries. Result and Discussion: The study finds that financial intermediation is fast changing as new types of economic players enter and new financial tools evolve. Moreso, that the financial markets have become more dominated by extensive intermediaries. We note that the development cryptocurrencies have largely affected the ways of intermediation, and this has effect on asset pricing theory. Implications: The theory and evidence on financial intermediation have important implications for the capital market. Originality: The study offers information related to theoretical perspectives on financial intermediation and intermediaries. The value of the paper is evidenced by the fact that it provides background on financial intermediation and intermediaries. Recommendations: The paper concludes that other means of intermediation that involve decentralised exchanged are continuously developing and this has implications for the current theory of intermediation. The study recommends the need for development of more details theory that consider the nature and effect of decentralised finance and decentralised exchange on the optimality of capital allocation.

Does supportive feedback on class rank improve scores for intermediate-level microeconomics?

Instructors may use low-cost, light-touch strategies to help students achieve optimal effort in demanding upper-level courses. The authors of this study exploit an intervention that provides a series of personalized feedback emails to students about their relative performance, which is tied to approving messages or tips that encourage improvement. The authors analyze the efficacy of this supportive rank feedback in an intermediate-level microeconomics theory course, given the challenges it poses to students. Evidence shows gains from feedback across the grade distribution, but they are short-lived and decline toward zero as the course progresses.

The Model of Stock Pricing Banking Sector on the Indonesia Stock Exchange during the Government of Susilo Bambang Yudhoyono and Joko Widodo

Differences in macroeconomic conditions between the SBY and JKW government periods can significantly impact stock prices within the banking sector, especially when the economy experiences fluctuations, leading to increased stock price volatility. This research aims to assess the influence of various macroeconomic factors, including the Global index, macroeconomics, world oil prices, China index, Arab index, competitive resources, and inflation, on banking sector returns from October 2004 to October 2014. The analysis utilizes the arbitrage pricing theory, difference test, and mean absolute deviation. The study divides the analysis into high-return and low-return groups for each government period. Findings indicate that macroeconomic factors exert a simultaneous influence on return groups during both SBY and Jokowi's administrations. However, for JKW high returns, these factors do not significantly impact them. Specifically, the Global Index, China Index, Arab Index, Resource Competitiveness, and Inflation show a positive correlation with both high and low returns during SBY term. Conversely, during JKW tenure, only the Global Index and China Index exhibit positive effects on high and low returns. The difference test reveals disparities in the Arab index for high and low returns of SBY, while only the Global index displays differences for JKW. The variations in high returns between SBY and Jokowi stem from discrepancies in the Global and Arab indices, while no distinctions exist in low returns between the two administrations. Additionally, the mean absolute return values for high returns during JKW era demonstrate the smallest accuracy, indicating potential limitations in the predictive power of the model during this period.

The role of finance in production and international trade

We introduce finance in a neo-classical general equilibrium model of production and international trade to integrate the core microeconomic theory with the theory of finance. The stock of credit, as past savings, finances employment and the acquisition of machines or capital goods. The availability of finance or international financial flows does not affect production or trade patterns, except for nominal factor prices, in undistorted competitive structures. However, distortions such as unemployment, imperfect credit markets, and factor mobility do affect real outcomes and trade. Our results are consistent with contemporary empirical evidence and have policy implications for financial development and institutional quality. Numerical illustrations provide further insights.

Product network and origin of common equity factor risks

This paper extends the multisector asset pricing model based on production networks, achieving direct pricing of a firm’s equity assets at a more microscopic level within the product network. An Equilibrium-Aligned PageRank (EA-PR) centrality algorithm is proposed, and it is theoretically proven that EA-PR centrality can reflect the relative value of products and further derive the value of firms. A new equity asset pricing factor is constructed based on the EA-PR centrality of firms. The key findings can be summarized as follows: Firstly, the EA-PR centrality of firms shows a significant positive linear predictability for equity returns, and the returns associated with the EA-PR centrality factor cannot be fully explained by the Fama–French 6 (FF6) factors. Secondly, the EA-PR centrality factor demonstrates significant explanatory power for the FF6 factors and, to some extent, exhibits predictive ability for future returns of the FF6 factors. Thirdly, the product network model can effectively reflect the market competitiveness and growth potential of firms, and firms with high EA-PR centrality have stronger value capture capabilities, improving gross profit margin, cash flow, and investment growth in the future. Finally, this study empirically demonstrates the consistency between the product network model and the pricing theory of the q5 model, which incorporates the expected growth factor.

The Left-tail Risk and the Cross-section of Stock Returns: Evidence from China

As a matter of fact, left-tail risk is a common risk in stock market. This study examines the linear correlation considering Value-at-Risk (VaR) and future stock returns within context of the Chinese main board stocks, particularly during periods marked by significant left-tail risk. Processing data from March 2014 to March 2024, this study concentrate to daily and monthly cross-section returns, along with other financial statistics. A suitable Fama-Macbeth regression using in this paper to exam the significance of left-tail risk. The key focus is to investigate the effect of VaR concerning future stock returns under downside market conditions, as indicated by the recent 23% drop in China’s benchmark CSI 300 index. The regression analysis indicates a significant negative correlation between VaR and future stock returns, suggesting that higher potential losses as indicated by VaR correspond with lower future returns. This outcome is contrary to traditional asset pricing theories which posit a positive risk-return relationship. The findings will attract attention of investors to consider extreme risk management of public stocks and contributes to the ongoing discussion on risk assessment in financial markets by highlighting the importance of integrating robust risk management tools like VaR in investment strategies, especially in volatile markets.

A Study of Black-Scholes-Merton Model

This study introduces the Option Pricing Theory improved by Black, Scholes, and Merton, which is also known as the Black-Scholes-Merton model, in detail and investigates its derivation process and historical development process. Despite the content above, it also includes its characteristics and mechanism. The newest Option Pricing formula proposed by Black, Scholes, and Merton was derived from mathematical methods such as the stochastic integral equation and Ito theorem. This essay concludes that the Black Scholes Merton model paved the way for the development and innovation of the subject of Financial Mathematics, which was found by the person who first came up with the Option Pricing Theory, which also contributes to the investment field to reduce the risk.

A Study on the Risks of Real Estate Investment

This paper examines the risks associated with real estate investment, leveraging Modern Portfolio Theory (MPT) introduced by Harry Markowitz and later applied to real estate by Nigel Dubben and Sarah Sayce. MPT emphasizes balancing expected returns and risk through diversification, crucial in real estate due to its low correlation with other assets and its inflation-hedging properties. Despite global economic integration increasing systemic risks, real estate remains a key asset class for risk management. The literature review highlights traditional strategies focusing on diversifying by property type and geographic location. Studies show mixed results: some suggest property type diversification yields higher returns, while others find geographic diversification more effective for risk mitigation. Chinese market studies reveal that real estate investments can provide predictable returns and act as a hedge during economic downturns. Research on Beijing and Shanghai supports the effectiveness of geographic diversification within China. Applying MPT to real estate, the paper demonstrates through case studies how investment combinations can balance risk and returns. It discusses the Efficient Frontier, CAPM, and Arbitrage Pricing Theory to illustrate the relationship between risk and return in real estate portfolios. The analysis concludes that diversification strategies, though complex, are essential for optimizing performance and mitigating risks in real estate investments.

The Relevance of Ibnu Khaldun's Price Concept to the Prohibition of Sales in E-Commerce

The background of the problem in this study suggests that the impact of the internet, one of which is technological advances, has opened up new business opportunities. As one of the urgencies of digital business progress in Indonesia today is e-commerce through the encouragement of advanced technology. The focus of this research explains that the relationship between Ibnu Khaldun's theory and the concept of e-commerce. This research uses a qualitative method with a description approach. The data collection is through literature articles, books and newsletter. As for the results of the research that the regulation of the Minister of Trade Number 31 of 2023 officially prohibits the merger of e-commerce and social commerce through e-commerce platforms, they are only allowed to promote products or services. This is called political dumping; the practice of dumping is expressly prohibited in Islam. In Ibnu Khaldun's price theory: the Islamic principle of determining the seller's price of a good tends to use the concept of average, because the demands of justice must be linked to effort.

FTSE 100 Index Linked Structured Financial Product Pricing Analysis

Since facing widespread skepticism after the 2008 economic crisis, nowadays structured products have gradually become the preferred investment choice for individual consumers, driven by the development of technology and economy. This study analyzes the price of the two most recent structured products offered by Lowes, which closely resemble the FTSE 100 index. It focuses on analyzing the differences in predicted returns resulting from modest structural changes and explores the best solutions for different time periods. The variability is determined by combining historical variability with the GARCH model, based on the principle of Risk Neutral Pricing Theory. The final result is acquired by the application of the Monte Carlo simulation method. Based on the trial results, product B has a greater yield rate compared to product A, although being more conditional. This compensates for the shortage and resulting in a much higher yield rate for product B. Furthermore, based on the findings on the projected output of various investment goods over different time periods, it can be observed that as the length increases, the anticipated return also increases. Ultimately, the sensitivity analysis reveals that the primary source of product risk stems from the impact of risk-free yields on this particular product.

Study on controllability assessment of a new type of power system based on lagrangian function integrated assessment method

The complex structure and multiple controllability metrics of the new power system require a comprehensive assessment approach. We propose a controllability assessment method based on the Lagrangian function, analyzing key factors that influence controllability. Our index system includes distributed power supply utilization rate, energy storage station charge state, power factor, and voltage offset. Using Lagrange shadow price theory, we construct a guideline layer index system treating bottom indexes as constraints. We formulate an optimization function utilizing the Lagrangian shadow price theory and considering weights calculated from the bottom index’s shadow price. These weights inform primary evaluation. By combining primary evaluation results, weights, and variable coefficients using the percentage system method, we determine comprehensive evaluation results for the new power system’s controllability. Experimental results demonstrate the high reliability of this method’s evaluation indexes, indicating their effectiveness. This research provides valuable insight for the advancement of the new power system. Region 1 had the lowest overall evaluation score of 51.57 and was rated general. The overall score of Region 2 was 77.24, which was considered good. Region 3 received the highest overall score of 86.29 and was rated as excellent.Graphical