5. Expected Market Return
CAPM; The expected market return is based on the overall market portfolio and reflects the return of a diversified portfolio of all available assets.
SAPM; The expected market return is based on the Sharia-compliant market portfolio and reflects the return of a diversified portfolio of Sharia-compliant assets.
6. Ethical and Religious Considerations
CAPM; Does not consider ethical or religious factors in the selection of assets and focuses purely on financial metrics and market dynamics.
SAPM; Strictly considers ethical and religious factors, excluding any assets involved in prohibited activities (e.g., alcohol, gambling, pork products) and Incorporates investor sentiment towards Sharia compliance and ethical investment.
7. Application and Relevance
CAPM; Widely used in conventional finance for asset pricing, portfolio construction, and risk management. Applicable to a broad range of investors and financial markets.
SAPM; Specifically designed for use in Islamic finance. Relevant to Muslim investors and institutions seeking to comply with Sharia law in their investment decisions.
The CAPM and SAPM serve similar purposes in their respective domains assessing the relationship between risk and expected return but differ significantly in their foundational principles, components, and applications. CAPM operates within the conventional financial framework, while SAPM is tailored to the requirements and restrictions of Islamic finance, ensuring compliance with Sharia law and ethical investment principles. By understanding these differences, investors can choose the appropriate model based on their financial goals and ethical considerations.
