Empirical Testing of the Five-Factor Model of Fama and French in Indonesia as an Emerging Capital Market

This study was conducted to empirically examine the five-factor model of Fama and French in respect to stock returns of companies listed in the finance sector with 170 observations over the period 2012-2016. As a comparative analysis, this study is also conducted to examine CAPM and the three-factor model of Fama and French. The findings of the study revealed that the market return has a positive and partially significant impact on the stock return for CAPM. Specifically, both variables, small minus big (SMB) and high minus low (HML) have a positive and significant impact on stock returns in the three-factor model and five-factor model of Fama and French. In contrast to the research of Fama and French the explanation power of the five-factor model is lower than that of the three-factor model in this research.