COMPARISON OF CAPITAL ASSET PRICING MODEL (CAPM) AND MULTIFACTORS MODEL IN PREDICTING STOCK RETURNS

Abstract

Risk and returns are the two most important items to be considered by an investor in making the investment decision. Because of this importance, there are models tthat can be used in predicting stock returns. This study use Capital Asset Pricing Model (CAPM) and Multifactor model in predicting the returns of companies in the manufacturing sectors of the Indonesia Stock Exchange which are Astra International (ASII), Indofood Sukses Makmur (INDF), Kalbe Farma (KLBF), Holcim Indonesia (SMCB), and Semen Gresik (SMGR). Results shows that apart from the KLBF that cannot be predicted using the multifactor models because of the problem in using the multifactor model, the multifactor model outperform the CAPM in predicting the return of the other stocks
Keywords: risk; return; Manufacturing sector; Capital Asset Pricing Model; Multifactor model