Analysis of Capital Asset Pricing Model in Stock Investment Decision Making

Abstract

Prior studies on Islamic equity valuation have yielded inconsistent findings and have predominantly focused on broader indices such as the LQ45 or Bisnis-27, leaving a gap in context-specific evidence for JII constituents. This study addresses that gap by systematically applying Capital Asset Pricing Model (CAPM) to evaluate the risk-return dynamics and investment efficiency of stocks listed on the JII from 2017 to 2023.  The CAPM application is used to determine the relationship between systematic risk (beta) and expected returns and to identify stocks that are classified as efficient (undervalued) and inefficient (overvalued). This study uses a quantitative descriptive method with a purposive sampling technique on 13 companies consistently listed on the JII. The results of this study indicate that the average beta value of stocks is 1.206, indicating that stocks in the JII tend to be aggressive. Based on the results of the Security Market Line (SML) analysis, there are six stocks categorized as undervalued and seven stocks that are overvalued. Stocks included in the efficient category such as ADRO, ANTM, and UNTR are recommended as optimal portfolio candidates because they offer relatively high returns with controlled risk. This study confirms that the application of the CAPM can help investors in evaluating the risk and potential returns of Islamic stocks for more rational investment decision-making.