What drives local currency bond market development in Saudi Arabia: do macroeconomic and institutional factors matter?

Abstract

The main objective of this study is to empirically determine which factors are related to the development of local-currency bond market (LCBM) in Saudi Arabia over the period 1990–2019. Using ARDL modeling, the results reveal long-run cointegrating relationships between LCBM capitalization and macroeconomic, financial, and institutional factors. Unlike institutional ones, macroeconomic and financial factors seem to matter more in developing LCBM in the short run. However, in the long run, larger economic size more government spending, low inflation levels, broader and deeper banking system, higher bureaucratic quality, and better investment profile, all play a crucial role in the determination of Saudi LCBM. Policy implications include measures toward sound macroeconomic fundamentals, broad and deep banking system, efficient stock market, and high-quality governance institutions.

Local Currency Bond Market Development and Currency Stability amid Market Turmoil

“…They found that LCY bond markets need support from politico-institutional factors, overall financial development, and sound financial system structure. Boukhatem (2021) found that macroeconomic and financial factors are more important than institutional factors for an LCY bond market's development in the short-run. However, he found that having a large economy, relatively more government spending, low inflation, a broader and deeper banking system, and higher bureaucratic quality are important.…”

How does financial risk affect sukuk market development? Empirical evidence from ARDL approach

“…Theoretical and empirical studies on the determinants of stock and bond markets development in both developed and emerging countries have been multiplied during the last decades showing their considerable importance in the process of economic growth and development ( Eichengreen and Luengnaruemitchai 2004 , 2006 , Burger and Warnock 2006 , Claessens et al., 2006 , 2007 , Ben Naceur et al., 2007 , Yartey 2008 , Eichengreen et al., 2006 , 2008 , Bae 2012 , Bhattacharyay 2013 , Mu et al., 2013 , Laeven 2014 , Felman et al., 2014 , Gray et al., 2014 , Suarez 2014 , Burger et al., 2015 , Ayala et al., 2016 , Smaoui and Khawaja. 2017 , Smaoui et al., 2017 , Teplova and Sokolova 2018 , Al-Raeai et al., 2018 , Huong, 2020, Alnagar et al., 2021 , Boukhatem 2021b , etc.). However, the growing importance of Sukuk around the world has recently involved an increasing interest in the research on sukuk markets due to the roles they played in contemporary Islamic economies.…”