Differences Between Capital Asset Pricing Model (CAPM) and Sharia Asset Pricing Model (SAPM)
1. Foundational Principles
CAPM; Based on conventional finance principles, Assumes all investors are rational and markets are efficient, and uses traditional financial metrics and instruments.
SAPM; Based on Islamic finance principles, Adheres to Sharia law, avoiding riba (interest), gharar (excessive uncertainty), and maysir (gambling), and uses Sharia-compliant financial instruments and metrics.
2. Risk-Free Rate
CAPM; The risk-free rate is typically represented by government bonds, which pay interest.
Example: U.S. Treasury bonds or Indonesian government bonds.
SAPM; The risk-free rate is derived from Sharia-compliant instruments like sukuk (Islamic bonds), which do not pay interest but generate returns through profit-sharing agreements.
Example: Sukuk issued by Islamic financial institutions or governments.
3. Market Portfolio
CAPM; The market portfolio includes all available assets in the market, regardless of their nature.
Uses broad market indices like the S&P 500 or IDX Composite.
SAPM; The market portfolio consists only of Sharia-compliant assets.
Uses Sharia-compliant indices like the IDX Sharia Growth index or Dow Jones Islamic Market Index.
4. BetaÂ
CAPM; Beta measures an asset's volatility relative to the overall market portfolio, which includes all types of assets.
Reflects systematic risk that cannot be diversified away.
SAPM; Beta measures an asset's volatility relative to the Sharia-compliant market portfolio.
Takes into account the unique risk characteristics of Sharia-compliant assets.
