An analysis of Fama and French three factor model in market reaction to Indonesia presidential election in 2019

Abstract

This study reveals stock market reaction to Indonesia presidential election in 2019 using Fama and French Three Factor Model with accounting dependent variable being Average Abnormal Return (AAR) in addition to Earning Per Share (EPS), Debt to Equity ratio (DER), Return on Assets (ROA), and Return on Equity (ROE) as independent variables. The research population was all stocks of the companies registered in the Indonesia Stock Exchange in 2019 with their dividend announcement. The characteristic of the observed object was stock price measured by return, abnormal return and average abnormal return during 111-day-observation comprising of 11 days of windows period observation and 100 days of estimation period. The data from 101 companies as samples determined through the purposive sampling technique were analyzed using SPSS software version 23, which represented all industrial sectors in Indonesia Stock Exchange. The measure and analysis of companies stocks concluded that a gradual rise in AAR values was witnessed in all stock portfolios during the announcement date.

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