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CAPITAL ASSET PRICING MODEL (CAPM): THE THEORY AND EVIDENCE IN INDONESIA STOCK EXCHANGE (IDX) AT THE PERIOD 2004-2009

ARUM SETYOWATI
FAKULTAS EKONOMI UNIVERSITAS SEBELAS MARET
Abstract
This research aims to examine the validity of the CAPM theory that were developed by Sharpe
(1964), Litner (1965), and Mossin (1966). The samples of this study used monthly stock returns
from 213 companies listed on Indonesia Stock Exchange (IDX) at the period 2004 to 2009.
Individual returns, stock price index, and certificate of Bank Indonesia were used as analyzed
variables. The findings of this research were not supporting the basic theory of CAPM, that the
higher risk (beta) is related with higher level of returns.

Keywords: CAPM theory, risk, return

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