Making investment decisions in shares of conventional banks and Sharia banks: A risk and return context

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Abstract

This study evaluates the efficiency of conventional and Islamic banking stocks in Indonesia using the capital asset pricing model (CAPM). The main issue raised is how differences in stock efficiency between conventional and Islamic banks affect investment decisions. According to Desiyanti (2017), CAPM is used to assess the relationship between risk and return and determine whether stocks are undervalued or overvalued. With a quantitative approach, this study analyzed secondary data from 47 banking companies listed on the Indonesia Stock Exchange (IDX), and through purposive sampling, 16 companies (eight conventional banks and eight Islamic banks) were selected. The results show eight efficient stocks (six conventional banks, and two Islamic banks) and eight inefficient stocks, in line with the findings of Yusnita and Ramadhan (2022) which show that stocks with actual returns higher than expected returns tend to be efficient. This study concluded that conventional banks have more efficient stocks than Islamic banks. The relevance of this study is that it provides insight into the management of stock investment portfolios in the Indonesian banking sector. Recommendations include the exploration of other financial subsectors and the application of alternative equilibrium models, such as arbitrage pricing theory (APT), to enrich investment decision-making.

Keywords: Capital Asset Pricing Model (CAPM), Investment, Conventional Banks, Sharia Banks

Authors’ individual contribution: Conceptualization — L.J.; Methodology — I.M.S.; Formal Analysis — N.; Investigation — Y.R.; Resources — A.M. and O.C.; Writing — Original Draft — M.S.; Writing — Review & Editing — M.S.; Funding Acquisition — L.J.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: C58, D49, G10, G12, G29, G30, M41, M49, O16

Received: 25.09.2024
Revised: 06.01.2025; 07.02.2025; 01.05.2025
Accepted: 16.05.2025
Published online: 21.05.2025

How to cite this paper: Judijanto, L., Soenhadji, I. M., Rahmawati, Y., Nofrivul, Masruroh, A., Charolina, O., & Susanti, M. (2025). Making investment decisions in shares of conventional banks and Sharia banks: A risk and return context. Risk Governance & Control: Financial Markets & Institutions, 15(2), 103–113. https://doi.org/10.22495/rgcv15i2p9