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All Journal Journal of Accounting and Finance Management (JAFM)
Yanwar Ayu Putri Anggraeni
Universitas Sangga Buana, Bandung, Indonesia
Economics, Econometrics & Finance

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Predictive Accuracy of the Arbitrage Pricing Theory Across Presidential Regimes: Evidence from Indonesia's LQ45 Index Erna Garnia; Siti Riyyan Lisaumi; Yanwar Ayu Putri Anggraeni
Journal of Accounting and Finance Management Vol. 7 No. 4 (2026): Journal of Accounting and Finance Management (September - October 2026)
Publisher : DINASTI RESEARCH

Show Abstract | Download Original | Original Source | Check in Google Scholar | DOI: 10.38035/jafm.v7i4.3855

Abstract

The Indonesian capital market is shaped by macroeconomic forces that drive stock return movements, yet evidence on how accurately factor-based asset pricing predicts returns under different political regimes remains limited. This study examines the Arbitrage Pricing Theory on the LQ45 Index across the Yudhoyono and Widodo presidencies and evaluates its predictive accuracy using mean absolute deviation. Seven dominant macroeconomic factors were derived from forty-one variables through principal component analysis. The sample comprised 23 stocks in the Yudhoyono period and 35 in the Widodo period, selected purposively, and was analyzed using multiple linear regression, dummy-variable difference tests, and prediction-error measurement across four return groups. The seven factors were jointly significant for stock returns in every group, while the direction of individual effects varied across return groups, and most factors showed no significant difference between the two periods. The model produced its lowest prediction error in the low-return group during the Widodo period. The study's novelty lies in reducing forty-one macroeconomic variables into seven interpretable factors and comparing the theory's predictive accuracy across presidential regimes and return groups, offering emerging-market evidence for investors and portfolio managers.
Co-Authors Erna Garnia Siti Riyyan Lisaumi