Capital asset pricing model and pricing of Islamic financial instruments

Hakim, Shabir Ahmad and Hamid, Zarinah and Mydin Meera, Ahamed Kameel (2016) Capital asset pricing model and pricing of Islamic financial instruments. Journal of King Abdulaziz University Islamic Economics, 29 (1). pp. 21-39. ISSN 7383-1018

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Abstract

The prohibitions of ribā (interest) and trading in non-ḥalāl businesses in Islam redefines investment universe assumed by Capital Asset Pricing Model (CAPM). In Islamic investment world, risk-free asset and market portfolio with non-ḥalāl constituents are irrelevant. We propose two-versions of Sharīʿah-compliant CAPM that use Sharīʿahcomplaint market portfolio and are free of risk-free asset. We test the proposed models together with conventional CAPM in Bursa Malaysia using three- and ten-year data. The test results of the models with three-year data reveal remarkable similarity between versions of Sharīʿah-compliant models. Besides, Sharīʿah-compliant CAPM is as capable of explaining returns on Sharīʿah-complaint stocks as conventional CAPM is of explaining returns on all stocks.

Item Type:	Article (Journal)
Additional Information:	728/53401
Uncontrolled Keywords:	Asset pricing, Sharīʿah-compliant CAPM, Sharīʿah-compliant zero-beta portfolio, Sharīʿah-compliant market portfolio, Islamic financial instruments
Subjects:	H Social Sciences > HG Finance > HG4001 Financial management. Business finance. Corporation finance. H Social Sciences > HG Finance > HG4501 Stocks, investment, speculation H Social Sciences > HJ Public Finance
Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button):	Kulliyyah of Economics and Management Sciences > Department of Economics
Depositing User:	Dr. Zarinah Hamid
Date Deposited:	20 Dec 2016 09:36
Last Modified:	23 May 2018 15:53
URI:	http://irep.iium.edu.my/id/eprint/53401

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