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CHAPTER II THEORITICAL FRAMEWORK AND HYPOTHESIS
2.1 Theories 2.1.1 Capital Market
Capital Market is the market in which long term financial instruments, such as bonds, equities, mutual funds and derivative
instruments are traded. Capital Market serves as an alternative for a companys capital resources and public investment. It also facilitates the
infrastructures needed for the selling and buying process and other related activities.
Financial instruments traded in the Capital Market are long term securities a period of more than 1 year. They consists of stocks, bonds,
warrants, rights, mutual funds, and other derivative instruments options, futures, etc..Capital Market Law Number 8 Year 1995 defines Capital
0DUNHWDV³WKHDFWLYLW\RIWrading and offering securities to the public, the activity of a public company with respect to securities it has issued, and the
activities of securities- UHODWHGLQVWLWXWLRQVDQGSURIHVVLRQV´
Capital Market plays an important role in the economy of a country because it serves two functions all at once. First, Capital Market serves as
an alternative for a companys capital resources. The capital gained from the public offering can be used for the companys business development,
expansion, and so on. Second, Capital Market serves as an alternative for public investment. People could invest their money according to their
preferred returns and risk characteristics of each instrument.
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2.1.2 Islamic Capital Market and Islamic Stock
The Islamic stock market can be considered one of the important branches of the Islamic capital market whereby its components and
activities are based on Islamic law, which is based on venerable sources and approved by the Fiqh Ulama Securities Commisions, 2008.
According to Islamic Capital Market Task Force report which published by IOSCO in 2004, islamic capital market means where investment and
financing activities and products are structured in accordance with Shariah SULQFLSOHV´XUVD Malaysias definition is taken from The Islamic Capital
Market, p. 2: The Islamic Capital Market ICM refers to the market ZKHUH DFWLYLWLHV DUH FDUULHG RXW LQ ZD\V ZKLFK GRHVQ¶W FRQIOLFW ZLWK WKH
principles of Islam. The ICM represents an assertion of religious law in capital market transactions where the market is free from prohibited
activities and elements such as riba ¶maisir and gharar.
In classical Islamic literature, there is no terminology of investment in capital market but, as an economic activity, transaction in capital market
can categorized as trading activity al-Bay. So that, to know the permitted of investment in capital market we must know the islamic law in trading
activity. According to Bapepams rule no. IX.A.13 concerning the issuance of
islamic securities the definition of islamic principles in the capital market is The principles of Islamic law in the capital market activities by the
National Sharia Board fatwa Indonesian Ulema Council DSN-MUI, both DSN-MUI fatwa specified in the regulations CMFISA or DSN-MUI fatwa
issued prior to the the adoption this regulation , along the fatwa is not in conflict with this rule and or Bapepam-LK others based on DSN-MUI
fatwa .As far known, sharia capital market in Indonesia is associated to the Jakarta Islamic Index JII, which only composed of 30 sharia
