Modified capital asset pricing model (CAPM) into sharia framework

Abstract

Abstract This study is to expose the sharia concept in the Islamic market, especially on the practice of the equilibrium model or the Capital Asset Pricing Model (CAPM). Islamic index and sharia market are introduced to answer the Islamic investment. However, we cannot apart from the interest rate, which is related to ‘riba’ and prohibited in Islam religion. Many references proposed the Islamic theory into the CAPM, so the model has been modified and adjusted to deliver the new solution on sharia investment. We provide a general illustration to explain how the sharia concept in CAPM as an equilibrium model and its implementation in Jakarta Islamic Index (JII). The result shows that the range of return is various, while the risk both beta and standard deviation have remained steady. The result shows that the Sharia version with the Sukuk rate performs better than the others from the expected return.