Journal of Economics, Finance and Accounting Studies ISSN: 2709-0809 DOI: 10.32996/jefas Journal Homepage: www.al-kindipublisher.com/index.php/jefas JEFAS AL-KINDI CENTER FOR RESEARCH AND DEVELOPMENT Copyright: © 2022 the Author(s). This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC-BY) 4.0 license (https://creativecommons.org/licenses/by/4.0/). Published by Al-Kindi Centre for Research and Development, London, United Kingdom. Page | 19 | RESEARCH ARTICLE Investment Decision Using Capital Asset Pricing Model (CAPM) in Indonesia’s Banking Sector Sri Mulyaningsih 1 ✉ and Jerry Heikal 2 12 Central Queensland University Australia, Bakrie University, Indonesia Corresponding Author: Sri Mulyaningsih, E-mail: ning.siswoyo80@gmail.com | ABSTRACT The focus of this research was to determine and investigate the application of the Capital Asset Pricing Modeling (CAPM) technique in analyzing investment decisions in particular banking stocks that specialize in digital banking operating models. Investors generally follow the IT or digital sector (Tech stocks) due to the sector's track record of delivering high returns and the promise for even greater returns in the future. In the banking sector, investors continue to pursue digital bank stocks as their holdings because they believe they may create value and expand. Six digital banking stocks were chosen for this study, all of which are listed on the Indonesian Stock Exchange and have an observation period of April 2021 to March 2022. These stocks are Bank Jago Tbk, Bank Neo Commerce Tbk, Bank Danamon Tbk, Bank Permata Tbk, Bank BTPN Tbk, and Bank OCBC NISP Tbk. This research uses linear regression analysis to determine the beta coefficient for the Capital Asset Pricing Modeling (CAPM) method and compares the expected return to the stock market's rate of return during the observation period in order to further differentiate between undervalued and overvalued stocks. The study found that two of the six digital banking companies had higher returns than expected (undervalued/efficient stocks), namely Bank Jago and Bank Neo Commerce, with the remaining four categorized as overvalued/inefficient. | KEYWORDS Risk, CAPM (Capital Asset Pricing Model), expected return, beta, undervalued, overvalued. | ARTICLE INFORMATION ACCEPTED: 20 September 2022 PUBLISHED: 30 September 2022 DOI: 10.32996/jefas.2022.4.4.3 1. Introduction For investors, managers, analysts, and researchers, accurate stock valuation is critical. They are putting in efforts to appraise businesses and identify undervalued stocks for investment. In order to build value for shareholders, managers rely on proper share valuation all of the time. The Capital Asset Pricing Model (CAPM) is one of the methodologies that may be used to determine the risk and rate of return of a financial asset. The CAPM was developed to aid investors in making stock selection decisions and decreasing the risk of their investments. The capital asset pricing model (CAPM) considers an asset's sensitivity to systematic or market risk, which is commonly represented in the stock market by the beta value. CAPM can assist investors in comprehending difficult market situations, avoiding investment risk, and calculating the amount of return they will receive, which is especially important in this pandemic (Hasan, 2019). Every investing opportunity entails some level of risk. Risk-Based Modeling takes systematic risk into account in addition to other variables. Systemic risk refers to the probability that an investor would experience losses as a result of variables impacting the overall performance of the financial markets and is defined as follows: recessions, political upheaval, interest rate changes, natural disasters, and terrorist attacks are all examples of risks to consider. For individual securities, we use the security market line (SML) and its link to expected return and systematic risk, as indicated by the beta coefficient (Suraj et al., 2020). The Capital Asset Pricing Model, frequently abbreviated as CAPM, was established by William Sharpe and John Litner in 1964 and 1965, respectively. It is a model that describes the relationship between risk and expected return and is used to price risky securities. This model considers