PERTANIKA JOURNAL OF TROPICAL AGRICULTURAL SCIENCE

In Islam, all decisions, activities, policies, strategies and interactions in the economy are related to human relationships. In the Islamic financial system, the syariah rules are considered in all economic activities including investment. Investment is money or capital commitment for the purchase of financial instruments or other assets to gain benefits in the form of interest. Most investment opportunities are interest based but Islamic law strictly prohibits interest or usury, also called riba in Arabic. The prohibition of riba has led to the creation of alternatives schemes for the compensation of investment capital. One of the methods of compensation is by means of profit-sharing and one of the financial contracts that internalise profit sharing is mudharabah. It is an investment partnership in which one party called rab ul mal provides capital while the other party called mudharib brings labour and effort with the provision of profit sharing in some pre-determined proportions. This paper uses the model of stochastic mudharabah investment which can be used in forecasting the profits gain by both two parties in a stock market investment.