Providing Recommendations on Capital Asset Pricing Model (CAPM) on the Basis of Islamic Assumptions

Islamic financial system comprising Islamic banking, Islamic insurance and Islamic capital market has turned into an important and basic component in the international markets following its development. The Islamic financial system has received significant attention as an efficient and executable financial model substitute for the neoclassic system. Islamic financing too is a renowned topic in financing which has illustrated remarkable growth and performance since the first decade of the 21st century. Although criticized for practicing the same pricing criteria as the conventional financial system in product pricing and profit charging, it is argued that Islamic finance falls within the frameworks of the Sharia law (Islamic law). Therefore, capital asset pricing in the stocks market is targeted in the present research. In this theoretically conducted work, the author aims to suggest an alternative to the CAMP (Capital Asset Pricing Model) asone of the most important financial models used for pricing of assets. Here, the author attempts to offer a suggestion to the CAPM using rules governing the Islamic financial system such as value-based pricing (on the basis of total asset), mechanisms underlying financial operations in the Islamic system and the system’s assumed Islamic contracts. The proposed model hereby presented is an expansion of the CAPM in the Islamic domain.