Comprehensive Analysis of Capital Asset Pricing Model and Arbitrage Pricing Theory in Stock Investment Decision Making

The increasingly advanced development of technology and the phenomenon of the Covid-19 outbreak, which has caused most employees to be affected by Work From Home, has led most people, especially the millennial generation or people under the age of 30, to be interested in allocating their excess funds into stock investments. This study aims to analyze the development of a multi-factor CAPM model by including volatility as an additional factor: a new approach in asset pricing with a case study of companies listed on the Indonesia Stock Exchange included in the LQ45 Index for the 2020-2023 period. The independent variables used in this study are Risk Premium (Beta), Company Size (SMB), book-to-market ratio (HML), and Stock Price Volatility. In contrast, the dependent variable used in this study is proxied by Stock Return with Excess Return. The population in this study consists of 45 companies. The sampling method uses a Purposive Sampling Technique. The analysis method used in this study is Multiple Linear Regression. The result of the study shows that the Risk Premium and Company Size variables partially have a significant positive effect on Stock Returns. The Book to Market Ratio variable partially has a negative but not significant impact on Stock Returns. Meanwhile, the Stock Price Volatility variable has a positive but insignificant effect on Stock Returns. The independent variables in this study can explain 88,61% of the factors affecting Stock Returns, while 11,39% is explained by other factors not researched in this study.