Modified capital asset pricing model (CAPM) into sharia framework

Subekti, Retno; Abdurakhman, Abdurakhman; Rosadi, Dedi

doi:10.1088/1742-6596/1581/1/012021

Cited by 7 publications

(13 citation statements)

References 2 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…The adjusted CAPMs on the risk-free rate components (SCAPM-1 to SCAPM-5) are summarized and applied with Indonesian stock market data (Subekti et al, 2020). Compared to the other four models, the model with the sukuk rate is better as a substitute for the risk-free rate in the CAPM under Islamic principles.…”

Section: Asset Pricing and Portfolio Modelingmentioning

confidence: 99%

Integrating Zakat and Purification in a Modified Black–Litterman Model for Shariah-Compliant Stock Portfolios

Subekti¹,

Abdurakhman²,

Rosadi³

et al. 2022

5002

View full text Add to dashboard Cite

Many articles demonstrate the advantages of applying Shariah principles in economic and financial activities, which motivates model development for Shariah investment. The development of the capital asset pricing model (CAPM) and mean-variance (MV) for Shariah portfolios shows various efforts within a Shariah framework. But the MV model has diversification weaknesses, and the Black–Litterman (BL) model solves this problem. According to Islamic principles, the CAPM’s use in the BL model is problematic due to the risk-free rate. This study aims to introduce a modified BL model adapted to Islamic principles. We propose a modified BL model with a Shariah-compliant asset pricing model (SCAPM) that considers the zakat obligation and purification rate to develop the model with Islamic principles. The proposed model was implemented in the Indonesian stock market. A portfolio’s Sharpe ratio using the BL-SCAPM outperforms BL-CAPM. This finding supports the idea that the modified BL model can be applied as a new alternative for a Sharia portfolio model.

show abstract

Section: Asset Pricing and Portfolio Modelingmentioning

confidence: 99%

Integrating Zakat and Purification in a Modified Black–Litterman Model for Shariah-Compliant Stock Portfolios

Subekti¹,

Abdurakhman²,

Rosadi³

et al. 2022

5002

View full text Add to dashboard Cite

show abstract

“…According to Subekti et al (2020), the structure of Islamic capital markets in Indonesia became large, investments in the Islamic capital markets were introduced first in 1997; then in 2000, the JKII has appeared to encourage investors who want to gain profits from the financial opportunities in Islamic capital markets (JKII is the first Islamic stock index established on July 3rd, 2000, which included 30 liquid stocks from the Indonesian capital market). There are similarities between the Islamic capital markets and the conventional ones in the practice of Islamic capital investment, the difference is that the mechanism and effect of trading do not violate the Islamic law principle which prohibits the interest rates (Subekti et al, 2020). The JKII has its own characteristics as any other Islamic stock index that differ from the conventional one in terms of risk, profit and loss sharing, and informational efficiency.…”

Section: Introductionmentioning

confidence: 99%

“…In the last decade, the Indonesian Islamic stock market became one of the most global developed Islamic stock markets that offer great profit opportunities (Ledhem, 2020;Qizam et al, 2020). According to Subekti et al (2020), the structure of Islamic capital markets in Indonesia became large, investments in the Islamic capital markets were introduced first in 1997; then in 2000, the JKII has appeared to encourage investors who want to gain profits from the financial opportunities in Islamic capital markets (JKII is the first Islamic stock index established on July 3rd, 2000, which included 30 liquid stocks from the Indonesian capital market). There are similarities between the Islamic capital markets and the conventional ones in the practice of Islamic capital investment, the difference is that the mechanism and effect of trading do not violate the Islamic law principle which prohibits the interest rates (Subekti et al, 2020).…”

Section: Introductionmentioning

confidence: 99%

“…, 2020). According to Subekti et al. (2020), the structure of Islamic capital markets in Indonesia became large, investments in the Islamic capital markets were introduced first in 1997; then in 2000, the JKII has appeared to encourage investors who want to gain profits from the financial opportunities in Islamic capital markets (JKII is the first Islamic stock index established on July 3rd, 2000, which included 30 liquid stocks from the Indonesian capital market).…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Deep learning with small and big data of symmetric volatility information for predicting daily accuracy improvement of JKII prices

Ledhem¹

2022

JCMS

View full text Add to dashboard Cite

PurposeThe purpose of this paper is to predict the daily accuracy improvement for the Jakarta Islamic Index (JKII) prices using deep learning (DL) with small and big data of symmetric volatility information.Design/methodology/approachThis paper uses the nonlinear autoregressive exogenous (NARX) neural network as the optimal DL approach for predicting daily accuracy improvement through small and big data of symmetric volatility information of the JKII based on the criteria of the highest accuracy score of testing and training. To train the neural network, this paper employs the three DL techniques, namely Levenberg–Marquardt (LM), Bayesian regularization (BR) and scaled conjugate gradient (SCG).FindingsThe experimental results show that the optimal DL technique for predicting daily accuracy improvement of the JKII prices is the LM training algorithm based on using small data which provide superior prediction accuracy to big data of symmetric volatility information. The LM technique develops the optimal network solution for the prediction process with 24 neurons in the hidden layer across a delay parameter equal to 20, which affords the best predicting accuracy based on the criteria of mean squared error (MSE) and correlation coefficient.Practical implicationsThis research would fill a literature gap by offering new operative techniques of DL to predict daily accuracy improvement and reduce the trading risk for the JKII prices based on symmetric volatility information.Originality/valueThis research is the first that predicts the daily accuracy improvement for JKII prices using DL with symmetric volatility information.

show abstract

“…On the other hand, several models have been suggested to bridge the investment concept implementing Islamic principles, particularly in compliant CAPM with Shariah adjustment (Subekti et al , 2020). Islamic CAPM (ICAPM) or SCAPM has the same meaning as CAPM with Islamic principles.…”

Section: Introductionmentioning

confidence: 99%

Toward the Black–Litterman with Shariah-compliant asset pricing model: a case study on the Indonesian stock market during the COVID-19 pandemic

Subekti

Abdurakhman

Rosadi

2022

IMEFM

View full text Add to dashboard Cite

Purpose This research aims to demonstrate portfolio modeling, which leads to Sharia compliance in encountering crises because of COVID-19. The authors proposed modifying the Black–Litterman (BL) model adapted to the Sharia principle. The implementation of BL on Shariah-compliant stock data with capital asset pricing model (CAPM) requires adjustment because of the interest rate in the calculation. Thus, the objective of this study is to develop and evaluate the modified BL for Shariah-compliant stock portfolios in the financial crisis caused by the COVID-19 pandemic. Design/methodology/approach The Sharia-compliant asset pricing model (SCAPM) with the inflation rate was regarded as the new starting point in the BL model. This proposed model was implemented in Indonesia using monthly returns from the Jakarta Islamic Index (JII) list collected from February 2014 to June 2019. Furthermore, the portfolio performance of BL-SCAPM was compared with two reference portfolios, the mean-variance method and BL-CAPM. Findings The result presents that the portfolio performance of BL-SCAPM outperformed the MV and BL-CAPM. The impact of the Sharpe ratio of BL-SCAPM was more significant than the reference portfolio. The equal benefit was procured from both portfolios in July and August 2019. After the COVID-19 outbreak was officially declared in January 2020, the performance of BL-SCAPM was still above the BL. Despite a decline in portfolio value before and during the outbreak, the reference portfolio losses were higher than those of BL-SCAPM. Hence, this study manifested that BL-SCAPM outperformed the reference portfolio. Practical implications The results illustrate the empirical study which can be implemented for the Shariah-compliant stock market in Indonesia. By evaluating portfolio value on the COVID crisis for long investment, replacing CAPM with SCAPM in the BL model can transform the asset proportion. It decreased the portfolio loss during the crisis. Future research can be developed more from the open problems in this implementation to deliver the portfolio model into the Shariah framework with varied SCAPM in BL. Originality/value The attention to BL studies on portfolio building with Sharia-compliant stocks is rarely focused on the Islamic perspective. Hence, the novelty of this research is the idea of modifying the BL model with a Shariah starting point. More generally, this research enriches Shariah financial literacy regarding the stock market and, specifically, its implementation in the Indonesian stock market.

show abstract

Modified capital asset pricing model (CAPM) into sharia framework

Cited by 7 publications

References 2 publications

Integrating Zakat and Purification in a Modified Black–Litterman Model for Shariah-Compliant Stock Portfolios

Integrating Zakat and Purification in a Modified Black–Litterman Model for Shariah-Compliant Stock Portfolios

Deep learning with small and big data of symmetric volatility information for predicting daily accuracy improvement of JKII prices

Toward the Black–Litterman with Shariah-compliant asset pricing model: a case study on the Indonesian stock market during the COVID-19 pandemic

Contact Info

Product

Resources

About