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

Abstract

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.

Perubahan Capital Aset Pricing Model, Risiko, dan Efisiensi: Triger Unit Asuransi Full-Pledge Syariah

“…Penelitian terdahulu juga telah mengangkat topik terkait nilai aset modal (capital aset price), akan tetapi lebih banyak membahas pada faktor-faktor pembentuk nilai tersebut, seperti tingkat risiko, bunga, faktor ekonomi makro, dan inflasi dengan objek industri perbankan (Hanif & et.al, 2019); (Baghdadabad, 2014); (Arja'i & Qudratullah, 2013); (Febrianto & Rachman, 2016). Penelitian terkait CAPM yang dikaitkan dengan instrument keuangan syariah (Bahloul & Mathlouthli, 2022); Subekti et.al (2022) ;Shaikh et.al (2018). Penelitian lainnya terkait risiko lebih menghubungkan dengan governance, quality asset profitabilitas yang dilatarbelakangi adanya krisis global (Nguye & Dang, 2022); (Sadaa & et.al, 2023); (Abid & et.al, 2022); (Abid et.al, 2021;Mehmood & Luca, 2023).…”

“…Penelitian terkait dengan CAPM dilakukan dalam mengukur apakah saham syariah dan sukuk dapat mengatasi beberapa kondisi krisis, seperti covid (Bahloul & Mathlouthli, 2022). Subekti et.al (2022) meneliti pasar saham Indonesia khusus syariah compliance di zaman covid dengan pendekatan CAPM Syariah. Hasilnya menunjukkan Sharia CAPM lebih unggul.…”

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

“…The new expected return from the Black-Litterman model derives from a combination of prior estimations from the CAPM (𝜋), and the views vector (Q) is expressed in Equation 5where the covariance values are 𝜏Σ and Ω, respectively, and P is a pick matrix related to the Q (Subekti et al, 2022).…”

“…Subekti et al (2022) used the SCAPM as a new starting point to adjust the BL strategy because it better suits portfolios containing Shariah-compliant stocks. The SCAPM uses the inflation rate instead…”

Cultural determinants of capital structure in Indonesian banking

“…This study aims to investigate the overall financial strength of different banking groups in Indonesia and test the determining factors influencing banks' financial strength. To estimate financial strength, the study employs an additive value function using the interpretation of macroeconomic variables such as inflation and Gross Domestic Product (GDP), along with factors influencing capital structure, which are still debated in financial studies, such as liquidity, earning Volatility, growth opportunity, and bank size (Shyam-Sunder & Myers, 1999;Subekti & Rosadi, 2022;Sujana, 2017;Syafira & Zainul, 2021).…”