Arbitrage Pricing Theory as Investment Decision Making Tools. Case of the Indonesian Oil, Gas, and Coal Mining Firms (Published)
Fossil energy sources such as oil, gas, and coal are the primary energy sources to support global modern economy. Over the last six years, global coal and oil prices has fell to its lowest in the last decades and drove Indonesian energy mining sector performances to collapse. The dependency to global energy prices creates uncertainty among investor, thus compelling the necessity of investment tools that could advise investor to take investment decision. Arbitrage Pricing Theory (APT) has been proven to be one of the most reliable asset pricing tools utilizing macro-multifactors. This research purposes are to utilize APT model as tools to predict eleven firms in coal, oil, and gas mining prices and analyzing macro factors of global coal, oil, and gas prices, exchange rate, interest rate, and consumer price index to give investment decision-making indication. This research use Seemingly Unrelated Regression weighted pooled least square method in panel data structure. Observing 6-year period using monthly data. This reasearch found that APT model could be use as technical tools to estimate the prices and return of stock prices of eleven firms. By utilizing mispricing moment, this model could also give investment decision making indication to investor.
Reconciling the Arbitrage Pricing Theory (APT) and the Capital Asset Pricing Model (CAPM) Institutional and Theoretical Framework (Published)
This paper examines the development of the capital assets pricing model (CAPM), which was developed by William Sharpe and John Lintner. It also looked at the various assumptions of CAPM and APT, and the contribution of Ross to the Arbitrage Pricing Theory (APT) in explaining the relationship between risk and return. The CAPM indicates that a linear relationship exists between a security required rate of return and its beta. The empirical verification of risk-return relationship indicates the mean-variance efficiency of the market proxy.