Does beta died in Emerging Market? CAPM is and old theory that used to be taught in most of business school today. This model was the foundation for understanding risk and return relationship. But this model shows some weakness in explaining some phenomena such as size-effect and has some anomaly in reality. In 1993 Fama & French proposed two additional variables in this model in order to capture the size and value role in risk and return relationship. Then Carhart in 1997 purpose another momentum variable in Fama French Model that later known as Four Factor Model. This research found that it is true that Four Factor Model perform better than CAPM but the incremental is not really big. Despite the value of R2 is higher, market premium alone already generate high reliable model (in this case CAPM). Then in conclusion CAPM still can be considered good asset pricing in Indonesia Market. But this research found some anomaly pattern during the 2008 economic crisis and this pattern couldn’t be explained by current model.
