Emerging market local currency bonds: Diversification and stability

Miyajima, Ken; Mohanty, Madhusudan; Chan, Tracy

doi:10.1016/j.ememar.2014.09.006

Cited by 85 publications

(56 citation statements)

References 24 publications

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“…The results give credence to the branch of literature which argues that currency effects are important when studying bond diversifications (for e.g. Eichengreen and Hausman (1999); Burger and Warnock, (2007) ;Miyajima et al (2012)). This branch of literature demonstrates that domestic factors -particularly monetary and fiscal policy -play a relatively more important role in determining investment behavior in local currency bonds as compared to international currency bonds where global factors such as US bond yields play a more important role.…”

Section: International Portfolio Diversificationsupporting

confidence: 51%

“…We have illustrated this branch of literature earlier which clearly speaks about these characteristics where domestic monetary and fiscal policy has a more important influence on the domestic bond markets (for e.g. Eichengreen and Hausman (1999); Burger and Warnock, (2007); Miyajima et al (2012)). …”

Section: Figure 4: Continuous Wavelet Transform -My-sov and My-cormentioning

confidence: 99%

“…Various studies indicate that domestic factors are likely to be correlated with global factors to some extent, particularly in times of a large global common shock (for e.g. Eichengreen and Mody, (2000); Gonzalez-Rozada and Yeyati, (2008); Miyajima et al, (2012)). Only after a passage of time do investors gradually revert to fundamentals and avoid panic-driven investment behaviour.…”

Section: International Portfolio Diversificationmentioning

confidence: 99%

“…The appeal of a financial asset to investors from a portfolio diversification perspective depends crucially on its returns being less correlated with other asset returns (Miyajima et al, 2012). However, despite the widespread use of world bond instruments as an asset class for investments, surprisingly little empirical research has been done on studying the portfolio diversification benefits of fixed-income instruments (Hansson et al, 2009).…”

Section: Introductionmentioning

confidence: 99%

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Does a Held-to-Maturity Strategy Impede Effective Portfolio Diversification for Islamic Bond (Sukuk) Portfolios? A Multi-Scale Continuous Wavelet Correlation Analysis

Najeeb

Bacha

Masih

2016

Emerging Markets Finance and Trade

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The Islamic bonds or sukuk market is one of the fastest growing segments of the nearly US$2trillion global Islamic finance industry. However, lack of trading in secondary sukuk markets is a peculiar feature in this sector and both institutional and retail sukuk investors are known to adopt a held-to-maturity investment strategy. Consequently, there is a critical gap in literature in studying the portfolio diversification opportunities available to sukuk investors and evaluating these in the light of held-to-maturity strategies. This paper (using recently available data and continuous wavelet transform methodologies) has made an initial attempt to study the portfolio diversification strategies for Islamic bond (sukuk) portfolios across heterogeneous investment horizons using the Malaysian and the Gulf Cooperation Council (GCC) sukuk markets as a case study. Our findings critically indicate that returns between local currency sukuk in different markets have low levels of long-term correlations, thus enabling portfolio diversification benefits. However, international currency sukuk issued in different markets exhibit high levels of long-term correlations which impede portfolio diversification benefits for held-to-maturity investments. A similar impediment is also witnessed in the domestic market context where diversification is intended by investing in different types of domestic sukuk. Overall, our findings critically highlight the feasibility of held-to-maturity sukuk investment strategies from a portfolio diversification perspective.

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Section: International Portfolio Diversificationsupporting

confidence: 51%

Section: Figure 4: Continuous Wavelet Transform -My-sov and My-cormentioning

confidence: 99%

Section: International Portfolio Diversificationmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Does a Held-to-Maturity Strategy Impede Effective Portfolio Diversification for Islamic Bond (Sukuk) Portfolios? A Multi-Scale Continuous Wavelet Correlation Analysis

Najeeb

Bacha

Masih

2016

Emerging Markets Finance and Trade

View full text Add to dashboard Cite

show abstract

“…Yields on emerging market LCY debt securities have fallen in tandem with those in more mature markets and have shown increasing tendency to move in sync with bonds in advanced economies (Miyajima et al 2012, Turner 2014. ii.…”

Section: Third Phase and Onwardmentioning

confidence: 99%