Authors: Dhaha Praviandi Kuantan,Hermanto Siregar,Solikin M Juhro
Year: 2019, Volume 28 No. 3
Nowadays, the development of asset price has a tendency to bias fundamental value. One of the fundamental approaches in price valuation that can be used is the Capital Asset Pricing Model (CAPM). The result of CAPM empirical testing showed that CAPM cannot fully explain stock valuation. In this case, even though the assumption of β2 and residual variance that has no significant influence is met, β does not have a significant effect in all the time when rolling regression is based on Black, Jensen and Schole (1978) and Fama and Macbeth (1979). This is thought to be caused by misvaluation factor and behavioral bias factor. Further testing using proxy indicators of misevaluation and behavioral bias such as Decomposition Market to Book Value showed a significant effect (Preliminary Result). The increase of misvaluation and behavioral bias phenomena arein line with the developing of very dynamic and high uncertainty environment so the perception and response of economic actor easily change due to the large amount of data and information available. In economics, this type of uncertainty comes from something we do not recognize and we are not fully aware or commonly called “unknown uncertainty – unknown”. The response of economic actor becomes unpredictable. This causes the risk of instability is increase even though fundamental economics is maintained.
Keywords: Misvaluation, Behavioral Bias, CAPM
JEL Classification: D1, F3, J2