UNAIR economist predicts stock returns in Indonesia

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Illustration by Feri Fenoria

UNAIR NEWS – “This research shows that what is generally considered as a conventional predictor of share prices (dividend yield) turns out to be the weakest predictor of returns on Indonesian shares”. That’s a brief excerpt from the study conducted by Dr. Nisful Laila Se., M.Com.

Nisful from FEB Universitas Airlangga, said in a study about stocks, several factors could influence investors to invest their funds in the capital market. One of them, Nisful said, is the expectation of rising share prices and the distribution of stock dividends.

“Several studies on stock returns showed that sectoral stock returns could be predicted in-sample and out-of-sample ,” she explained.

By using predictability models, continued Nisful, investors can develop profitable trading strategies. The results of several studies, he explained, showed that markets that are in the early stages of development could not replicate the evidence provided from other developing markets.

“In this regard it is interesting to study, what are the factors influencing the formation of stock returns in the Indonesian stock market?” she said.

Therefore, Nisful and the team conducted a study showing that unlike in conventional markets, it turns out that the capital expenditure factor is the most powerful predictor of stock returns. In contrast, the overall evidence for other out-of-sample predictions is very weak.

“This study specifically investigates the characteristics of the stock market in Indonesia,” she said.

In the end, Nisful explained something new and interesting from her team’s study was the preparation of a new dataset about the Indonesian stock market. Furthermore, she continued, the research cannot confirm that the predictability of returns on the Indonesian stock market has economic relevance given the relatively low profits.

“It tends to imply that for markets that are in the early stages of development, such as Indonesia, capital expenditure has a more significant role. But whether investors can benefit from these predictions is not known clearly from the analysis of this study, ” she concluded.

Author: Nuri Hermawan

Editor: Khefti Al Mawalia



Susan Sunila Sharma, Paresh Kumar Narayan, Kannan Thuraisamy, and Nisful Laila. 2019. Is Indonesia’s stock market different when it comes to predictability?. Emerging Markets Review.

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