The application of factors analysis and arbitrage pricing theory (APT) to determine expected return of sharia stocks in Indonesia

The Arbitrage Pricing Theory (APT) is a pricing model that can be used to determine the expected return of a security. APT is based on the assumption that the expected return is affected by more than one factor. Risk in APT is the sensitivity of macroeconomic factors to return concerning the expected return of securities. This study uses ten stocks consistently listed on the Jakarta Islamic Index (JII) from 2015 to 2021. Furthermore, the macroeconomic factors applied in the APT model are seven macroeconomic factors that have been proven to have a significant influence on sharia stock returns. Those seven factors are BI (Bank Indonesia) interest rates, inflation rates, exchange rates, money supply, Industrial Production Index (IPI), world oil prices, and world gold prices. Two models of APT are applied to obtain the sensitivity value of sharia stock returns to macroeconomic factors and the expected return of sharia stocks. We get the sensitivity value using regressing the time series data between sharia stock returns and the surprise of seven macroeconomic factors. Furthermore, We determine the expected return using regressing the cross-section data between risk-free stock returns (R_f), the sensitivity value (β) of each stock return with the macroeconomic factors, and the value of the risk premium. The expected value obtained from the APT model applied to sharia stocks provides information that ADRO, INCO, and UNTR stocks are overvalued stocks. In contrast, AKRA, ICBP, INDF, KLBF, TLKM, UNVR, and WIKA stocks are undervalued stocks.