Composite Behavioral–Fundamental Indexes via PCA for Predicting Indonesia Stock Exchange Excess Returns: An Integrated Anomaly Analysis

DOI

10.2991/978-94-6463-990-2_38How to use a DOI?

Keywords

Principal Component Analysis; Behavioral Finance; Traditional Fundamental Valuation; IDX Excess Return; Market Anomalies

Abstract

This study integrates traditional valuation metrics and behavioral sentiment indicators into a composite framework to predict excess returns on the Indonesia Stock Exchange (IDX). Seven proxies—price-to-book value, price-to-earnings, turnover ratio, consumer confidence, global sentiment, Fear & Greed Index, and VIX—were standardized and subjected to Principal Component Analysis (PCA), yielding two orthogonal factors: a fundamental valuation factor and a behavioral sentiment factor. These factors explain 46.9% of total variance and were used as predictors in a multiple regression model for IDX excess return. Regression results show both factors have significant negative impacts on returns (β = –0.382, p < .001), with the model accounting for 29.2% of return variability (F(2,77) = 15.86, p < .001). Findings corroborate value-reversion and sentiment-return dynamics, demonstrating that overvaluation and extreme sentiment each herald lower subsequent returns. The composite PCA approach mitigates multicollinearity and enhances explanatory power compared to single-proxy models, extending anomaly forecasting techniques to emerging markets. For Indonesian investors, the dual-factor strategy offers a robust tool for timing market entry and exit by combining fundamental screening with sentiment monitoring.

Copyright

© 2026 The Author(s)

Open Access

Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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TY  - CONF
AU  - Wina Nurfitriani
AU  - Syafrita Ridha Ginting
AU  - Lailan Syafrina Hasibuan
AU  - Muhammad Simba Sembiring
PY  - 2026
DA  - 2026/02/13
TI  - Composite Behavioral–Fundamental Indexes via PCA for Predicting Indonesia Stock Exchange Excess Returns: An Integrated Anomaly Analysis
BT  - Proceedings of the 7th International Conference on Applied Economics and Social Science (ICAESS 2025)
PB  - Atlantis Press
SP  - 567
EP  - 583
SN  - 2352-5428
UR  - https://doi.org/10.2991/978-94-6463-990-2_38
DO  - 10.2991/978-94-6463-990-2_38
ID  - Nurfitriani2026
ER  -