Exploring Investment Decision-Making with CAPM: Case Studies on Ten Raw Materials Companies Listed in Stock Exchange

The investment business in Indonesia experienced significant growth in line with the increasing stock trading activity in the capital market. The large number of capital markets in Indonesia means investors have to be careful in determining the shares to be chosen. Based on transaction value, the raw materials sector is the second largest sector that supports the Indonesian capital market. Given the large number of issuers in the raw materials sector, determining investment portfolios is important to obtain optimal results. CAPM can classify stocks as efficient or not based on their expected return value. The results obtained can be used as a consideration in portfolio decision-making. This research identifies 10 stocks in the raw materials sector listed on the IDX. Of the 10 stocks studied, 8 are included in the efficient category, which has a greater return than expected, and 2 are included in the inefficient category. This means that investors who want to invest in raw materials can make a decision to buy these 8 stocks, and it is not recommended to buy shares in 2 inefficient category stocks or sell 2 stocks.


Introduction
Business development in Indonesia, especially in the investment sector, shows significant growth from time to time.This rapid growth reflects the potential of capital markets, which are increasingly attractive to market participants and investors.This illustrates the increasing interest of investors in conducting investment activities in the capital market (Pufaa, 2023).This phenomenon is evident from the increase in stock buying and selling transactions in the capital market.In 2023, the number of capital market investors in Indonesia will reach 10,311,152 people, an increase of 37.68% from the previous year.As of February 2023, the number of capital market investors in Indonesia will reach 10,623,731 people.This increased by 3.03% compared to the previous year (Qoyum 2018).
Investment is the act of giving up resources (money, time, and effort) in the hopes of gaining more in the future (Laopodis 2020).In the investment process, there are three things to consider: the expected rate of return, the level of risk, and the availability of the amount of funds to be invested.
Portfolio is a collection of investments from a wide range of assets, such as stocks, bonds, future contracts, options, real estate, diamonds, gold, savings, and other assets with a level of profit and risk that varies within a certain period of time (Kapoor 2014).Portfolio theory deals with investor estimation of expected returns and levels of risk by combining assets into an efficient portfolio diversification.The goal is to try to achieve efficient stocks, that is, maximize return expectations with certain risks.An efficient stock can also be said to be a stock with an individual rate of return that is greater than the expected rate of return.
The capital asset pricing model is a model that determines the expected return that is feasible for an investment.In CAPM, the expected rate of return is determined by the market rate of return, the risk-free rate of return, and systematic or beta risk.CAPM can also assist investors in calculating non-diversifiable risks in a portfolio and comparing them to predicted returns.By seeing the importance of portfolio analysis for investors to determine investment in the capital market, it is hoped that portfolio analysis with the CAPM approach can help investors make investment decisions.Several studies have used CAMP in determining efficient stock classifications, including Musodik et al.(2021), who determined the classification of automotive sector stocks, and Rahmah Dewi et al. ( 2022), who carried out an effective IDX30 stock classification.This research will conduct effective stock classification using CAPM in the raw materials sector.The Indonesia Stock Exchange (IDX) recorded the raw materials sector as the 4th largest sector that supports Indonesia's market capitalization.In addition, when referring to transaction value, the raw materials sector is also the second largest support sector after the financial sector.This research is expected to provide deep insights related to investment decision-making using CAPM for raw material sector companies listed on the IDX.

Materials
The data used is the closing price data of 10 raw material sector stocks listed on the Indonesia Stock Exchange and JCI obtained from www.yahoofinance.co.id.In addition, BI rate data obtained from www.bi.go.id is used.The data used in this study is from the last three years, namely data from December 2020 to November 2023.Here are 10 stocks in the raw material sector listed on the Indonesia Stock Exchange are given in Table 1.

Rate of Return on Individual Stocks
The rate of return of individual stocks refers to the total rate of return of a particular investment over a given period of time (Goetzmann 2014).The rate of individual stock returns is one of the considerations investors consider when investing.The rate of return on individual stocks is calculated using the following formula: with: Rate of return of company ( ) closing price of individual stock in the present period ( ) closing price of individual stock in the last period

Market Rate of Return
The market rate of return is the rate of return that is based on the stock price index.This level of return can be used as a basis for measuring portfolio investment performance.One of the market indices that can be chosen for the IDX market is Jakarta Composite Index (JCI).The formula used to calculate the market rate of return when using JCI is (2) with: = Market rate of return benchmark value in the current period benchmark value in the PREVIOUS period

Risk-Free Rate of Return
The risk-free rate of return is the rate of return obtained from risk-free assets or assets with zero variance (Reilly and Brown 2011).One of the assets that has no risk is a short-term debt certificate issued by the government, such as a Bank Indonesia Certificate (SBI).The formula for calculating the risk-free rate of return is as follows: Risk-free rate of return ∑ Amount of risk-free rate of return = Observation time

Capital Asset Pricing Model (CAPM)
CAPM is an important model in finance that helps link risk to return on investment.This model states that the relationship between risk and return is unidirectional.The CAPM also shows that the price of a risky asset depends on how related it is to the market as a whole.Using CAPM, we can gauge how well an investment is doing by looking at the risks and expected returns (Rui et al. 2018).
The CAPM states that, in balance, the expected return of any security expressed in (De Chiara and Puopolo 2015): where ( ) = expected rate of return of securities ( ) = expected rate of return on market portfolio = systematic risk of individual stocks covariance of return of securities with market return market return variance Based on value of ( ) obtained, Jones et al. (2009:242-243) explained about investment decisions on stocks, namely efficient if ( ) so that investors can buy the shares, and inefficient when ( ) so that investors can sell a ham or short sell before the stock price rises.

Results and Discussion
The calculation of the individual rate of return of stocks is done by substituting monthly close price data into equation (1).The calculation results are summarized in Table 2.The calculation results in Table 2 show that during the study period, TINS's company shares had the lowest individual rate of return at -0.0179, while the highest rate of return was ESSA's company shares at 0.0514.From Table 2, it can also be seen that of the 10 company stocks studied, there are 7 stocks that have a positive average individual rate of return and 3 stocks that have a negative average individual rate of return.
Next, the calculation of the market rate of return during the study period is carried out.The calculation results are presented in Table 3. Next, a systematic risk calculation is carried out for each stock.The calculation results are presented in Table 5.Based on the calculation of this value, all stocks have a positive beta value, which shows the movement of stock prices in the company in the direction of stock price movements in the market.Next, the calculation of the expected return is carried out using CAPM.The calculation results are presented in Table 6.From Table 6, it can be seen that TINS stocks that have the highest beta value obtain the lowest expected

Table 1 :
List of Companies of Basic Materials Listed in Indonesia stock Exchange (BEI)

Table 2 :
Result of Calculation of the Average Rate of Return on Individual Stocks ( )

Table 3 :
Result of Calculation of the Average Market Return

Table 5 :
Result of Calculation of Stock Beta