The determinants of co-movement dynamics between sukuk and conventional bonds

Hassan, M. Kabir; Paltrinieri, Andrea; Dreassi, Alberto; Miani, Stefano; Sclip, Alex

doi:10.1016/j.qref.2017.09.003

Cited by 67 publications

(56 citation statements)

References 48 publications

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“…They found that there was a significant difference between sukuk and conventional bond returns. In the same year, by employing the VaR approach, Hassan et al (2018) provided evidence of different behaviors of the sukuk and conventional bonds, and results indicated that a pure sukuk portfolio was considerably less safe than a conventional bond portfolio. This evidence was supported by another study related to issues in Islamic capital markets, the sukuk and shariah stock markets (Lahsasna and Lin 2012).…”

Section: Empirical Literaturementioning

confidence: 99%

A Wavelet-Based Analysis of the Co-Movement between Sukuk Bonds and Shariah Stock Indices in the GCC Region: Implications for Risk Diversification

Nasreen

Naqvi

Tiwari

et al. 2020

JRFM

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Investors are interested in knowing whether sukuk bonds and shariah stock indices in the Gulf Corporation Council (GCC) region are related. This study examines the connectedness between the sukuk- and shariah-compliant stock indices in the GCC financial markets. Bivariate and multivariate wavelet approaches are applied to the daily data covering the period 10 July 2008 to 15 May 2017. The empirical findings demonstrate a strong correlation between these GCC sukuk bond indices and shariah stock indices. The degree of connectedness between these sukuk and shariah stock indices varies across time and scale. A strong and positive association is observed in the short term and a negative association is evident in the long term. The same findings are observed, using the wavelet cohesion approach that also validates the existence of portfolio diversification opportunities at a short-time horizon. The multivariate cross-correlation analysis reveals that these sukuk and shariah stock markets are highly integrated across time and scale. Furthermore, the value at risk (VaR) for the sukuk bond–shariah stocks portfolio is performed to highlight the significance of the wavelet analysis. The outcomes show that portfolio stocks are variable with respect to time or scale (time diversification). Overall, analyzing the sukuk bond–shariah stock index returns in the GCC at a multiscale level makes it easier for financial agents dealing with heterogeneous trading horizons to assess the benefits of diversifications.

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Section: Empirical Literaturementioning

confidence: 99%

A Wavelet-Based Analysis of the Co-Movement between Sukuk Bonds and Shariah Stock Indices in the GCC Region: Implications for Risk Diversification

Nasreen

Naqvi

Tiwari

et al. 2020

JRFM

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“…Although the global Sukuk market has been growing rapidly, the literature on Sukuk has evolved at a slower pace. The existing studies cover several issues including firm-specific determinants of Sukuk (Azmat, Skully, and Brown 2014;Hanifa, Masih, and Bacha 2015); country-level determinants (Smaoui and Khawaja 2017); the relationship between Sukuk and economic development (Smaoui and Nechi 2017); the effect of Sukuk on the stock market (Ashhari, Chun, and Nassir 2009;Alam, Hassan, and Haque 2013;Godlewski, Turk-Ariss, and Weill 2013;Hassan et al 2017); Sukuk structures and risks (Tarik and Dar 2007); and Sukuk versus conventional bonds (Cakir and Raei 2007).…”

Section: Introductionmentioning

confidence: 99%

The impact of Sukuk on the insolvency risk of conventional and Islamic banks

2019

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This paper investigates the impact of Sukuk market development on bank insolvency risk using a sample comprising 72 Islamic banks (IBs) and 145 conventional banks (CBs) spanning 15 countries over the 2003-2014 period. We measure bank insolvency risk using the z-score. Using the system-GMM estimator, we find that Sukuk market development adversely affects the insolvency risk of IBs, while that of the CBs remains unchanged. Moreover, our results point to a negative and significant effect of the size on the insolvency risk of both CBs and IBs, thus confirming the well-documented Too-Big-To-Fail hypothesis. This effect is more pronounced for IBs indicating that large IBs exhibit higher insolvency risk than their conventional counterparts. Finally, we show that the 2008 global financial crisis has exacerbated the negative effect of Sukuk market development on bank insolvency risk, as expected.

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“…They agree with that investors perceive issuance of sukuk as a negative signal. Hassan et al (2017) show, using a multivariate GARCH framework, that sukuk and conventional investment-grade bonds have a lower reaction of conditional volatility to market shocks and higher persistence, and sukuk returns are much less volatile than US and EU investment-grade bonds. They also find significant behavioral shifts in the sukuk-bonds relationship, which are explained by market liquidity, crude oil prices, US credit information, and stock market uncertainty.…”

mentioning

confidence: 97%

Nexus between risk sharing vs non-risk sharing financing and economic growth of Bangladesh

Chowdhury

Akbar²,

Shoyeb

2018

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and finally, Quoc Cuong Phan and Taha Bhatti for the excellent research assistance in managing some of the papers in this issue. 646 MF 44,6 regarding the effect of these two variables to risk exposure and efficacy of both Islamic and conventional banking systems. In order to add more value to current literature with reference to the differences between Islamic and conventional banking systems, Bougatef and Korbi aimed to study the factors that explain intermediation margins under both Islamic and conventional banks operating in the Middle East and North Africa. By using the dynamic panel modeling approach, they revealed different determinants of net profit margins under these two systems. Utilizing various methodologies including Markowitz's (1952) portfolio optimization, visual data representations and the classic Fama-Macbeth (1973) two-pass procedure regressions, Cheong investigated the ability of the Islamic Gold Dinar to hedge against foreign exchange market volatility. His findings documented a new hedging instrument to diversify investors' currency portfolios. In the later article, Chowdhury, Akbar and Mohammad examined the relationship between Islamic financing principles and economic growth in Bangladesh using auto regressive distributive lags. Having considered all annual reports of Islamic banks in Bangladesh, this group of authors shed light on how the economic growth responds to the risk sharing and non-risk sharing instruments. In the wake of the GFC, predicting financial distress in banking systems has been increasingly more critical in order to prevent future economic downturns. In their paper, Halteh and his co-authors; Kumar and Gepp aimed to forecast the failure by using cutting-edge stochastic models including decision trees, stochastic gradient boosting and random forests to study 101 international publicly listed Islamic banks. Their findings add value to the literature on the issue of Islamic banking and predicting financial distress. To examine the differences in investors' perceptions concerning the response to the issuance of Sukuk and conventional bonds, Hassan, Ahmed and Rayfield observed significantly negative abnormal returns before and after the announcement date of Sukuk issuance. By utilizing linear and logistic regression models, they found an interesting connection: first, between firms' characteristics and these abnormal returns; and second, issuers' preferences between issuing Sukuk and conventional bonds. Mahmood, Gan and Nguyen, by utilizing the two-step system GMM estimation technique on 55 full-fledged Islamic banks from 11 different countries, have analyzed various factors at both firm-specific and macroeconomic levels, in order to explore their impacts on maturity transformation risk. This paper makes an important contribution to studying maturity transformation risk which is considered one of the major causes of the global financial crisis. Md Zabri and Mohammed examined the acceptability of the Cash Waqf-financial cooperative-Musharakah Mutanaqisah (MM) home financing...

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The determinants of co-movement dynamics between sukuk and conventional bonds

Cited by 67 publications

References 48 publications

A Wavelet-Based Analysis of the Co-Movement between Sukuk Bonds and Shariah Stock Indices in the GCC Region: Implications for Risk Diversification

A Wavelet-Based Analysis of the Co-Movement between Sukuk Bonds and Shariah Stock Indices in the GCC Region: Implications for Risk Diversification

The impact of Sukuk on the insolvency risk of conventional and Islamic banks

Nexus between risk sharing vs non-risk sharing financing and economic growth of Bangladesh

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