Investment strategy in the Islamic capital market: Study on the Indonesia stock exchange

Zaenal Arifin*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


The Islamic capital market is a capital market selling Islamic stocks, and is traded based on Islamic principles. Currently, there are many capital markets providing Islamic stock. Islamic capital market concepts have been developed by a number of experts, such as Metwally (1992), Chapra (1992), and Taj-El-Din (2002). This study aims to create a model of investing in Islamic capital markets. It tests whether existing Islamic capital market models are adequate. The results of these tests show that Metwally’s model is quite attractive in terms of return and risk, but is constrained by technical problems relating to capital markets that do not allow trade restrictions, as required by Metwally. In contrast, the Chapra model has no constraints in implementation, but its appeal does not consistently outperform or match existing capital market models. Therefore, the study will also examine Islamic capital market models that are both attractive to investors and can be effectively implemented. Findings of this research show the Islamic capital market model using a long-term investment strategy is an attractive option, and proves that investments over longer periods will generally yield higher annualised returns. The annual investment yields the greatest returns, followed by the period of a semester, and then quarterly. Investors who do not have large amounts of cash will generally only invest in certain stocks to serve as their portfolio. The strategy of selecting stocks based on price-to-book ratio (PBR) is quite successful in generating higher return/risk.

Original languageEnglish
Pages (from-to)15-26
Number of pages12
JournalPertanika Journal of Social Science and Humanities
Issue numberAugust
Publication statusPublished - Aug 2018
Externally publishedYes


  • Islamic capital market models
  • Long-term investment strategy
  • Price to book ratio
  • Stock return


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