SUMMARY
Since the late 1960s, one of the stock performance analysis tools commonly used is Sharpe Ratio. The Sharpe Ratio consists of three components, namely stock return, risk-free returns, and stock risk. Many studies approach risk-free returns with interest rates, including when measuring the performance of Islamic stocks, while interest rates are prohibited in the concept of Islamic finance. Moreover, the stock risk is measured by a standard deviation which assumes returns are normally distributed, while many stock returns are non-normally distributed. This paper intends to measure the performance of Islamic stocks listed on the Indonesian Stock Exchange (IDX) for the period of January 2011 to July 2018 using a modified Sharpe Ratio. The ratio is modified by replacing the interest rate with four approaches: eliminating the interest rate, changing with zakah rates, changing with inflation, changing with the nominal gross domestic product, and replacing the risk measurement from Standard Deviation to Value at Risk (VaR). The findings provide almost the same results as the original measurement and thus, show very high suitability for using these models in other circumstances. Therefore, on the concept of Islamic finance, risk-free returns can be measured using these four approaches, especially inflation and GDP. This study also recommends inflation and GDP to measure risk-free returns in the Sharia's Compliant Asset Pricing Model (SCAPM) or Islamic Capital Asset Pricing Model (ICAPM).