Assessing Returns of IDX Sharia Growth Stocks: Applying The Fama-French Five-Factor Model For Portfolio Optimization
DOI:
https://doi.org/10.14421/grieb.2025.131-06Keywords:
Sharia-Portfolio Return, Five-Factor Model, IDX Sharia Growth StocksAbstract
This study examines the influence of the Fama-French five-factor model on the excess return of stocks listed in the Indonesia Stock Exchange Sharia Growth Index and offers recommendations for optimizing Sharia-compliant portfolios. The model includes five independent variables: overall market return, firm size (measured by the return difference between small and large firms), book-to-market value, profitability (difference between firms with strong and weak earnings), and investment strategy (difference between conservative and aggressive asset growth). The analysis uses quarterly data from 2022 to 2023 and selects 14 companies from the index based on data completeness and consistent listing. Multiple linear regression with the Ordinary Least Squares method reveals that only the market return and firm size factors have a significant effect on excess return, with firm size having the strongest impact. Meanwhile, the book-to-market value, profitability, and investment strategy factors do not show significant individual influence. However, when assessed collectively, all five factors explain 93.06 percent of the variation in excess return, indicating the model’s overall strength. The study is limited by its short time frame due to the recent launch of the index and its relatively small sample size. These findings suggest that Sharia-compliant investors should prioritize firm size and market trends in portfolio construction. Future research should incorporate longer time periods, broader index comparisons, and qualitative factors such as investor sentiment or environmental, social, and governance indicators to enhance understanding of return behavior in Islamic equity markets.
Downloads
Abstract viewed: 258 times
|
PDF downloaded = 239 times
References
Abdul Halim, A. (2023). A Five-Factor Asset Pricing Model of Shariah Compliant Firms in the United States. Jurnal Institutions and Economies, 15(3), 59–80. https://doi.org/10.22452/IJIE.vol15no3.3
Akbar, U. S., Bhutto, N. A., & Rajput, S. K. O. (2021). Does the Five-Factor Model Perform Better Than Three Factor Model? Evidence From Developed Countries of the Asia Pacific Region. Irasd Journal of Economics, 3(2), 119–132. https://doi.org/10.52131/joe.2021.0302.0030
Alrabadi, D. W. H., & Alrabadi, H. W. H. (2018). The Fama and French Five Factor Model: Evidence From an Emerging Market, 38(2), 295–304. https://doi.org/10.21608/aja.2018.17439
Antonakakis, N., Chatziantoniou, I., & Filis, G. (2013). Dynamic Co-Movements of Stock Market Returns, Implied Volatility and Policy Uncertainty. Economics Letters, 120(1), 87–92. https://doi.org/10.1016/j.econlet.2013.04.004
Anuno, F., Madaleno, M., & Vieira, E. (2023). Using the Capital Asset Pricing Model and the Fama–French Three-Factor and Five-Factor Models to Manage Stock and Bond Portfolios: Evidence From Timor-Leste. Journal of Risk and Financial Management, 16(11), 480. https://doi.org/10.3390/jrfm16110480
Awwaliyah, I. N., & Husodo, Z. A. (2019). The Extended Fama-French Three Factor Model: Revisited. Indonesian Capital Market Review, 10(2). https://doi.org/10.21002/icmr.v10i2.11181
Buditomo, B., Candra, S., & Soetanto, T. V. (2024). Fama and French Five- Factor Study of Stock Market in Indonesia. International Journal of Organizational Behavior and Policy, 3(1), 39–52. https://doi.org/10.9744/ijobp.3.1.39-52
Cai, Y., Shen, Y., Wang, T., & Xie, T. (2021). Examination of U.S. Finance-Related Industry Under COVID-19 Based on Fama-French Model. https://doi.org/10.2991/assehr.k.211209.192
Chamadia, S., Rehman, M. U., & Kashif, M. (2022). Do Average Higher Moments Predict Aggregate Returns in Emerging Stock Markets? Journal of Asian Business and Economic Studies, 29(2), 120–145. https://doi.org/10.1108/jabes-08-2021-0140
Charteris, A., Rwishema, M., & Chidede, T.-H. (2018). Asset Pricing and Momentum: A South African Perspective. Journal of African Business, 19(1), 62–85. https://doi.org/10.1080/15228916.2017.1343033
Chiah, M., Chai, D., Zhong, A., & Li, S. (2016). A Better Model? An Empirical Investigation of the Fama–French Five‐factor Model in Australia. International Review of Finance, 16(4), 595–638. https://doi.org/10.1111/irfi.12099
Cho, S. (2012). The Size Premium: What Role Does Macroeconomic Risk Play? SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1969828
Darma, Y. D., & Anggi Lestari, V. S. (2022). Fama-French Five Factors Model pada Excess Return Saham Indeks Kompas 100. Jurnal Riset Akuntansi & Perpajakan (JRAP), 9(01), 88–100. https://doi.org/10.35838/jrap.2022.009.01.07
Demirer, R., Gupta, R., Lv, Z., & Wong, W. (2019). Equity Return Dispersion and Stock Market Volatility: Evidence From Multivariate Linear and Nonlinear Causality Tests. Sustainability, 11(2), 351. https://doi.org/10.3390/su11020351
Dewanto, C. A. N., & Sumiati. (2022). PENGARUH FAMA-FRENCH FIVE FACTOR MODEL TERHADAP RETURN SAHAM. JURNAL MANAGEMENT RISIKO DAN KEUANGAN, 1(3).
Dhaoui, A., & Bensalah, N. (2017). Asset valuation impact of investor sentiment: A revised Fama–French five-factor model. Journal of Asset Management, 18(1), 16–28. https://doi.org/10.1057/s41260-016-0027-2
Diallo, B., Bagudu, A., & Zhang, Q. (2023). Fama–French Three Versus Five, Which Model Is Better? A Machine Learning Approach. Journal of Forecasting, 42(6), 1461–1475. https://doi.org/10.1002/for.2970
Dirkx, P., & Peter, F. J. (2020). The Fama-French Five-Factor Model Plus Momentum: Evidence for the German Market. Schmalenbach Business Review, 72(4), 661–684. https://doi.org/10.1007/s41464-020-00105-y
Fama, E. F., & French, K. R. (1996). Multifactor Explanations of Asset Pricing Anomalies. The Journal of Finance, 51(1), 55–84. https://doi.org/10.1111/j.1540-6261.1996.tb05202.x
Fama, E. F., & French, K. R. (2015). A five-factor asset pricing model. Journal of Financial Economics, 116(1), 1–22. https://doi.org/10.1016/j.jfineco.2014.10.010
Fama, E. F., & French, K. R. (2017). International tests of a five-factor asset pricing model. Journal of Financial Economics, 123(3), 441–463. https://doi.org/10.1016/j.jfineco.2016.11.004
Fonseca, J. D., & Xu, Y. (2018). Variance and Skew Risk Premiums for the Volatility Market: The VIX Evidence. Journal of Futures Markets, 39(3), 302–321. https://doi.org/10.1002/fut.21968
Foye, J. (2018). A comprehensive test of the Fama-French five-factor model in emerging markets. Emerging Markets Review, 37, 199–222. https://doi.org/10.1016/j.ememar.2018.09.002
Foye, J., & Valentinčič, A. (2020). Testing factor models in Indonesia. Emerging Markets Review, 42, 100628. https://doi.org/10.1016/j.ememar.2019.100628
Gao, M. (2023). Tests of the Fama-French Five-Factor Model in the US Stock Market Under the COVID-19 Pandemic. 221–226. https://doi.org/10.2991/978-94-6463-268-2_26
Gharaibeh, O., & Al-Qudah, A. M. (2020). Analysis the Determinants of Risk Factor Model for the Jordanian Banking Stocks. Journal of Asian Finance Economics and Business, 7(12), 615–626. https://doi.org/10.13106/jafeb.2020.vol7.no12.615
Grandes, M., Panigo, D. T., & Pasquini, R. A. (2010). On the estimation of the cost of equity in Latin America. Emerging Markets Review, 11(4), 373–389. https://doi.org/10.1016/j.ememar.2010.08.001
Handayani, M., Farlian, T., & Ardian, A. (2019). Firm Size, Market Risk, and Stock Return: Evidence from Indonesian Blue Chip Companies. Jurnal Dinamika Akuntansi Dan Bisnis, 6(2), 171–182. https://doi.org/10.24815/jdab.v6i2.13082
Hu, F. (2022). Fund-Level Investor Sentiment and Mean-Variance Relation: Evidence From Singapore-Listed ETFs. International Research in Economics and Finance, 6(3), 18. https://doi.org/10.20849/iref.v6i3.1273
Huang, P., & Hueng, C. J. (2008). Conditional Risk–return Relationship in a Time-Varying Beta Model. Quantitative Finance, 8(4), 381–390. https://doi.org/10.1080/14697680701191361
Huang, Y., Yang, J., & Zhang, Y. (2013). Value Premium in the Chinese Stock Market: Free Lunch or Paid Lunch? Applied Financial Economics, 23(4), 315–324. https://doi.org/10.1080/09603107.2012.720010
IDX Syariah. (2022). IDX Sharia Growth (IDXSHAGROW) [Information]. https://www.idx.co.id/id/idx-syariah/indeks-saham-syariah
Kubota, K., & Takehara, H. (2017). Does the Fama and French Five‐Factor Model Work Well in Japan? International Review of Finance, 18(1), 137–146. https://doi.org/10.1111/irfi.12126
Lin, Q. (2017). Noisy prices and the Fama–French five-factor asset pricing model in China. Emerging Markets Review, 31, 141–163. https://doi.org/10.1016/j.ememar.2017.04.002
Mosoeu, S., & Kodongo, O. (2022). The Fama-French five-factor model and emerging market equity returns. The Quarterly Review of Economics and Finance, 85, 55–76. https://doi.org/10.1016/j.qref.2020.10.023
Munawaroh, U., & Sunarsih, S. (2020). The Effects of Fama-French Five Factor and Momentum Factor on Islamic Stock Portfolio Excess Return Listed in ISSI. Jurnal Ekonomi & Keuangan Islam, 6(2), 119–133. https://doi.org/10.20885/jeki.vol6.iss2.art4
Musawa, N., Kapena, Prof. S., & Shikaputo, D. . . C. (2018). A Test of the Fama-French Five Factor Model in Comparison to the Capital Asset Pricing Model at the Lusaka Securities Exchange. International Journal of Finance and Accounting, 3(1), 35–47. https://doi.org/10.47604/ijfa.684
Nguyen, N., Ulku, N., & Zhang, J. (2015). The Fama-French Five Factor Model: Evidence From Vietnam [Thesis]. University of Otago. https://nzfc.ac.nz/papers/updated_16/49.pdf
Qin, R. (2019). Study on Applicability of Fama-French Five-Factor Model in Chinese a-Share Market. https://doi.org/10.2991/ssmi-19.2019.16
Racicot, F.-E., & Rentz, W. F. (2017). A panel data robust instrumental variable approach: A test of the new Fama-French five-factor model. Applied Economics Letters, 24(6), 410–416. https://doi.org/10.1080/13504851.2016.1197361
Safiullah, M., & Shamsuddin, A. (2019). Asset Pricing Factors in Islamic Equity Returns. International Review of Finance, 21(2), 523–554. https://doi.org/10.1111/irfi.12290
Saleh, M. (2020). Empirical Testing of the Five-Factor Model of Fama and French in Indonesia as an Emerging Capital Market. Journal of Economics and Business, 3(1). https://doi.org/10.31014/aior.1992.03.01.175
Sohor, M. H., & Low, S. (2024). How Well Has Fama-French Five-Factor Model Explained Asset Returns? - A Systematic Literature Review. International Journal of Academic Research in Accounting Finance and Management Sciences, 14(2). https://doi.org/10.6007/ijarafms/v14-i2/21632
Sunarsih, S., & Sholihati, A. M. (2023). Five-Factor Asset Pricing Model Fama and French dalam Memahami Excess Return Saham Syariah sebelum dan sesudah Diumumkan Covid-19 di Indonesia. Benefit: Jurnal Manajemen dan Bisnis, 98–115. https://doi.org/10.23917/benefit.v8i1.1363
Sutrisno, B., & Ekaputra, I. A. (2016). Uji Empiris Model Asset Pricing Lima Faktor Fama-French Di Indonesia. Jurnal Keuangan Dan Perbankan, 20(3). https://doi.org/10.26905/jkdp.v20i3.287
Takyi, P. O., & Bentum-Ennin, I. (2021). The Impact of COVID-19 on Stock Market Performance in Africa: A Bayesian Structural Time Series Approach. Journal of Economics and Business, 115, 105968. https://doi.org/10.1016/j.jeconbus.2020.105968
Vo, D. H. (2015). Which Factors Are Priced? An Application of the Fama French Three‐Factor Model in Australia. Economic Papers a Journal of Applied Economics and Policy, 34(4), 290–301. https://doi.org/10.1111/1759-3441.12119
Wijaya, L. I., Irawan, R. K., & Mahadwartha, P. A. (2018). Test of Fama a French Five Factor-Model on Indonesian Stock Market. https://doi.org/10.2991/insyma-18.2018.12
Xu, Y. (2024). Comparison Between Different Pricing Models: Evidence From the Technology Industry. Advances in Economics Management and Political Sciences, 59(1), 222–230. https://doi.org/10.54254/2754-1169/59/20231126
Yu, J., & Yuan, Y. (2011). Investor Sentiment and the Mean–variance Relation☆. Journal of Financial Economics, 100(2), 367–381. https://doi.org/10.1016/j.jfineco.2010.10.011
Zaremba, A., & Czapkiewicz, A. (2017). Digesting anomalies in emerging European markets: A comparison of factor pricing models. Emerging Markets Review, 31, 1–15. https://doi.org/10.1016/j.ememar.2016.12.002
Костин, К. Б., Runge, P., & Mamedova, L. E. (2022). Validity of the Fama-French Three- And Five-Factor Models in Crisis Settings at the Example of Select Energy-Sector Companies During the COVID-19 Pandemic. Mathematics, 11(1), 49. https://doi.org/10.3390/math11010049
Downloads
Published
Issue
Section
License
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
Global Review of Islamic Economics and Business is licensed under a
Creative Commons Attribution-ShareAlike 4.0 International License
