Is Indonesia's stock market different when it comes to predictability? |
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| Institution: | 1. School of Economics and Commerce, South China University of Technology, Guangzhou, China;2. Shool of Finance, Zhejiang Gongshang University, Hangzhou, China;3. School of Finance, Zhongnan University of Law and Economics, Wuhan, China;4. School of Business and Management, Shanghai International Studies University, Shanghai, China;1. International Monetary Fund, USA;2. CORE Louvain Finance, Université Catholique de Louvain, Belgium;3. PSL, Université Paris-Dauphine, France;1. Department of Finance, Accounting, and Economics, Bournemouth University, UK;2. Department of International Management, Kozminski University, Warsaw, Poland;3. CASE-Center for Social and Economic Research, Warsaw, Poland;1. Department of Finance, Deakin Business School, Deakin University, Australia;2. Department of Economics and Finance, La Trobe Business School, La Trobe University, Australia;3. Centre for Financial Econometrics, Deakin Business School, Deakin University, Melbourne, Australia |
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| Abstract: | We construct a unique dataset consisting of 342 firms aimed at stock return predictability. Using seven predictors, we show that unlike in conventional markets, it is capital expenditure that is the most successful predictor of returns. However, the overall evidence of out-of-sample predictability when using other conventional return predictors is weak. Capital expenditure-based forecasting models do lead to profits also although these are small. This tends to imply that for markets that are at the nascent stages of development, such as Indonesia, capital expenditure might have a role to play in shaping the market. Our results are in sharp contrast to the literature on emerging markets. |
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