PRICE EARNINGS RATIO (PER) MODEL CONSISTENCY: EVIDENCE FROM JAKARTA STOCK EXCHANGE

  • Marwan Asri Universitas Gadjah Mada
  • Antonius Antonius N. Heveadi Universitas Gadjah Mada

Abstract

Recently, stock valuation model using the earning multiplier approach (PER) is more popular among investors and analysts. This popularity has caused this model to seem to be the most perfect model among other valuation models. In response to the fact above, this research tries to
give empirical evidence whether PER’s cross-sectional model can be used in determining the fairness of stock price traded in Jakarta Stock Exchange.
Evaluation of the capability of PER’s cross-sectional model in determining the common stock price was conducted by developing three regression models from different time periods, namely the years of 1995, 1996, and 1997. The regression models used in this research was the one developed by Whitbeck-Kisor (1973). The model employed growth, dividend payout ratio (DPR), and standard deviation of growth (s-growth) as independent variable.
This research was intended to test the consistency of the model in assessing stock prices. The result of this research showed that each model developed at different time periods, though with the same sample and method, gave different results. The differences were in the significance level and in the weight of influence of independent variables to the corresponding dependent variables. As a stock valuation model, a regression model should perform consistently from period to period, so normal
PER of a stock could be predicted based on the model that was developed by historical data.

Author Biographies

Marwan Asri, Universitas Gadjah Mada

He earned his Ph.D. (1977) from the University of Kentucky, US. He is a senior lecturer at the Faculty of Economics and also teaches at the Master of Management Program, Univeristas Gadjah Mada (MMUGM).

Antonius Antonius N. Heveadi, Universitas Gadjah Mada

He is earned his MM (Magister Manajemen) from Universitas Gadjah Mada, Yogyakarta. He is a business practitioner who lives in Jakarta

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Published
2018-08-08
How to Cite
Asri, M., & Antonius N. Heveadi, A. (2018). PRICE EARNINGS RATIO (PER) MODEL CONSISTENCY: EVIDENCE FROM JAKARTA STOCK EXCHANGE. Gadjah Mada International Journal of Business, 1(2), 85-97. Retrieved from https://journal.ugm.ac.id/v3/gamaijb/article/view/13792
Section
Articles