The Capital Asset Pricing Model is developed based on market conditions in a state of equilibrium, where the expected return of securities is determined only by the amount of systematic risk (β) of the security in question. Whereas in practice, the expected return of securities is influenced by many factors, so the question arises whether the Capital Asset Pricing Model has empirical validity in the Indonesian Capital Market? This study aims to find evidence of empirical validity of the enactment of the Capital Asset Pricing Model in the Indonesian Capital Market.
The population used in this study is that securities that are always consistently listed in the LQ45 index from 2015 to 2019 are 33 securities. There are three analytical tools used, namely: first is Second-Pass Regression as used by Lintner (1965) and Douglas (1968), second is regression through the origin point between security risk premium (E (Ri) - Rf) as the dependent variable with systimatic securities (bi) as an independent variable, the third is the Paired Sample T-Test between the actual expected return of securities obtained from the Harry Max Markowitz method and the predicted expected return of securities obtained with the Capital Asset Pricing Model. The first test model showed that the coefficient of the Second – Pass Regression was different from the risk premium merket [E (Rm) - Rf] which was negative and not significant. The second test model shows that the regression coefficient through the origin is also different from the risk premium merket [E (Rm) - Rf] which is negative and not significant, the third test model shows that the actual expected return of securities is not significantly different from the expected expected return of securities . The three test models prove that the CAPM does not have valid empirical validity in the Indonesian Capital Market.