Sukuk and Bond Puzzle: An Analysis with Characteristics Matched Portfolios

Mohammed  Hossain; Md Hamid  Uddin; Sarkar Kabir

doi:10.1080/1540496X.2019.1706478

Sukuk and Bond Puzzle: An Analysis with Characteristics Matched Portfolios

Mohammed Hossain, Md Hamid Uddin, Sarkar Kabir

Research output: Contribution to journal › Article › peer-review

13 Citations (Scopus)

684 Downloads (Pure)

Abstract

A sukuk is an Islamic financial asset structured to offer investors a cash flow equivalent to that of a bond. The difference between them is in their contractual mechanism: a bond constitutes a lender–borrower relationship between the holders and issuers whereas a sukuk constitutes a lessor-lessee, buyer-seller, or a partnership relationship. Therefore, we examine whether they are different assets in terms of their return and risk profile. Given the difference between them, it is also important to identify what drives sukuk returns. The study finds that sukuk returns are insignificantly different from those of bonds but have significantly higher risk. However, we find that sukuk investors are not sufficiently compensated for the higher risk. Overall, our study finds that sukuks’ market performance is unrelated to bond market performance, but the market performance of the industry in which the sukuk-financed project originates has a significant effect on sukuk performance.

Original language	English
Pages (from-to)	3792-3817
Number of pages	26
Journal	Emerging Markets Finance and Trade
Volume	57
Issue number	13
Early online date	4 Jan 2020
DOIs	https://doi.org/10.1080/1540496X.2019.1706478
Publication status	Published - 2021

Bibliographical note

This is an Accepted Manuscript of an article published by Taylor & Francis in Emerging Markets Finance and Trade on 04/01/2020, available online: http://www.tandfonline.com/10.1080/1540496X.2019.1706478

Copyright © and Moral Rights are retained by the author(s) and/ or other copyright owners. A copy can be downloaded for personal non-commercial research or study, without prior permission or charge. This item cannot be reproduced or quoted extensively from without first obtaining permission in writing from the copyright holder(s). The content must not be changed in any way or sold commercially in any format or medium without the formal permission of the copyright holders.

Keywords

Conventional bond
G10
G12
industry performance
sukuk
sukuk performance

ASJC Scopus subject areas

Finance
Economics, Econometrics and Finance(all)

Access to Document

10.1080/1540496X.2019.1706478

Post-PrintAccepted author manuscript, 1.29 MBLicence: Unspecified

Cite this

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title = "Sukuk and Bond Puzzle: An Analysis with Characteristics Matched Portfolios",

abstract = "A sukuk is an Islamic financial asset structured to offer investors a cash flow equivalent to that of a bond. The difference between them is in their contractual mechanism: a bond constitutes a lender–borrower relationship between the holders and issuers whereas a sukuk constitutes a lessor-lessee, buyer-seller, or a partnership relationship. Therefore, we examine whether they are different assets in terms of their return and risk profile. Given the difference between them, it is also important to identify what drives sukuk returns. The study finds that sukuk returns are insignificantly different from those of bonds but have significantly higher risk. However, we find that sukuk investors are not sufficiently compensated for the higher risk. Overall, our study finds that sukuks{\textquoteright} market performance is unrelated to bond market performance, but the market performance of the industry in which the sukuk-financed project originates has a significant effect on sukuk performance.",

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N2 - A sukuk is an Islamic financial asset structured to offer investors a cash flow equivalent to that of a bond. The difference between them is in their contractual mechanism: a bond constitutes a lender–borrower relationship between the holders and issuers whereas a sukuk constitutes a lessor-lessee, buyer-seller, or a partnership relationship. Therefore, we examine whether they are different assets in terms of their return and risk profile. Given the difference between them, it is also important to identify what drives sukuk returns. The study finds that sukuk returns are insignificantly different from those of bonds but have significantly higher risk. However, we find that sukuk investors are not sufficiently compensated for the higher risk. Overall, our study finds that sukuks’ market performance is unrelated to bond market performance, but the market performance of the industry in which the sukuk-financed project originates has a significant effect on sukuk performance.

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Sukuk and Bond Puzzle: An Analysis with Characteristics Matched Portfolios

Abstract

Bibliographical note

Keywords

ASJC Scopus subject areas

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Sarkar Kabir

Cite this

Sukuk and Bond Puzzle: An Analysis with Characteristics Matched Portfolios

Abstract

Bibliographical note

Keywords

ASJC Scopus subject areas

Access to Document

Other files and links

Fingerprint

Profiles

Sarkar Kabir

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