Reaching stellar performances over Southeast Asia region in 2009 and Asia-Pacific region in
2010, Indonesian Stock Exchange becomes more interesting to study. This study tries to test the
volatility dynamics and conditional CAPM using multivariate GARCH-M model with time varying
correlations on Indonesian capital market over the period 1995～2010. Most of the estimated
parameters of volatility dynamics are highly significant for size-sorted portfolios and the correlation
between index and asset portfolio return may vary over time for both industrial and size-ranked
portfolios. But the parameter for the price of risk, (), has not been statistically significant for
both industrial and size-ranked portfolios in Indonesia.
Keywords：Volatility Dynamics, Conditional CAPM, Multivariate GARCH-M, Time-Varying
Correlations, Indonesian Capital Market