Indicators of Company Performance, Investors’ Expectation and Investment Risk in Predicting Stock Return at Indonesia Stock Exchange

Abstract

The objective of this research is to identify the indicators that empirically are better  to measure company performance, investors’ expectation and investment risk in predicting the individual stock return, especially capital gain. There are many indicators available, but not all indicator are relevant to stock market empirically.

In predicting stock return based on company performance, investors’ expectation and investment risk, the three factors are latent variable that value measured by their each indicators. Company performance indicators are Earnig per Share, Price-Earning Ratio, Book Value, Price-Book Value Ratio, Debt-Equity Ratio, Return on Assets, Return on Equity and Net Profit Margin (EPS, PER, BV, PBV, DER, ROA, ROE, NPM and OPM). Investors’ expectation indicators are Price Trend, Latest Return, Average Return, Return Trend, Latest Return Percentage, Average Return Percentage, and Return Trend Percentage (PT, LR, AR, RT, LR%, AR% and RT%). Investment risk indicators are Standard Deviation of return, Coefficient of Variation, and Coefficient Beta of stock (SD, CV and Beta). From all indicators only the good ones that used to predict future return. Therefore, it is necessary to select the proper indicators before use them.The type of this research are quantitative, ex post facto, associative, and positivistic by analyzing the relevancy of the indicators with measured variables. Exploratory Factor Analysis (EFA), Confirmatory Factor Analysis (CFA) and Goodness of Fit Test analysis are used in this study.The conclusion of this study is to confirm that: Firstly, good indicators of company performance are ROA, ROE and NPM. Secondly, good indicators of investors’ expectation are PT and AR or LR and RT. Thirdly, good indicators of investment risk are SD and Beta.

Keywords : Company performance, investor’s expectations, investment risk, EPS, PER, BV, PBV, DER, ROA, ROE, NPM, OPM, PT, LR, AR, RT, LR%, AR%, RT%, SD, CV and Beta