THE PERFORMANCE OF ASSET PRICING MODELS BEFORE, DURING, AND AFTER AN EMERGING MARKET FINANCIAL CRISIS: EVIDENCE FROM INDONESIA

Due to the dynamic nature of stock market risk and return measurement, financial practitioners and academics are continuously concerned with the development of asset pricing studies. Moreover, validity of the existing theories in the recent Asian financial crises years stimulates additional challenges to the discipline. This paper investigates the ability of Capital Asset Pricing Model (CAPM) and Arbitrage Pricing Theory (APT) in explaining excess returns of portfolios of stocks traded on the Jakarta Stock Exchange (JKSE). The study assesses the theories using data from 3 different periods: the pre-crisis period (1992-1997), the crisis period (1997-2001), and the post-crisis period (2001-2007). Our finding show that Beta does not single handedly explain portfolio excess returns. The, APT is able to explain the portfolio excess returns in the observation periods were excess return averages are found to be consistently negative. We also find that spread between the central bank rate and commercial bank rate is a constantly significant variable, while risk-premiums vary over the observation periods.