Investment Decisions Using the Capital Asset Pricing Model (CAPM): Evidence from LQ45 Companies during the 2020–2024 Period

Abstract

This study explores the relationship between risk and return in LQ45 index stocks during the 2020–2024 period using the Capital Asset Pricing Model (CAPM) as the primary analytical framework. CAPM is applied to estimate expected stock returns by considering systematic risk represented by beta. The research employs a quantitative descriptive approach involving 24 companies selected based on predetermined criteria. The analysis confirms a positive relationship between beta and expected return, indicating that stocks with higher systematic risk tend to provide greater potential returns. Furthermore, the study compares actual stock returns with CAPM-based expected returns to classify stocks into undervalued and overvalued categories. The findings reveal that six stocks are classified as undervalued, representing potential investment opportunities, while the remaining eighteen stocks are considered overvalued. These results demonstrate that CAPM can serve as an effective tool not only for understanding the risk–return relationship but also for assisting investors in making more informed and strategic investment decisions in the capital market.