Why do Sukuks (Islamic Bonds) need a different pricing model?

Md Hamid Uddin, Sarkar Kabir, M. Kabir Hassan, Mohammed Sawkat Hossain, Jia Liu

Research output: Contribution to journalArticlepeer-review

11 Citations (Scopus)
139 Downloads (Pure)


The global interest in sukuk, an Islamic alternative to bond financing, has grown rapidly, particularly after the 2008 global financial crisis, due to its distinctive features and investment quality. Sukuk were first launched in Malaysia and are presently available in 29 countries, including the United Kingdom, United States, Singapore, Hong Kong, and Luxembourg. Despite the global market prevalence of sukuk, asset pricing literature has not yet addressed the pricing mechanism of sukuk, which is inherently different from bonds and equity due to the contractual differences. However, analysts use LIBOR, or the Islamic interbank benchmark rate, as the ad‐hoc benchmark to evaluate sukuk performance. In this study, we develop a basic pricing model that captures the common risks in sukuk returns. We identify two risk factors for sukuk that require risk premiums: (a) sukuk market risk and (b) information asymmetry risk. Using these two common sukuk risks factors, investment analysts can estimate the fair value of sukuk more precisely than other ad hoc measures available.
Original languageEnglish
Pages (from-to)2210-2234
Number of pages25
JournalInternational Journal of Finance and Economics
Issue number2
Early online date17 Sept 2020
Publication statusPublished - 6 Apr 2022

Bibliographical note

This is the peer reviewed version of the following article: Uddin, MH, Kabir, S, Hassan, MK, Hossain, MS & Liu, J 2022, 'Why do Sukuks (Islamic Bonds) need a different pricing model?', International Journal of Finance and Economics, vol. 27, no. 2, pp. 2210-2234., which has been published in final form at https://dx.doi.org/10.1002/ijfe.2269. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions. This article may not be enhanced, enriched or otherwise transformed into a derivative work, without express permission from Wiley or by statutory rights under applicable legislation. Copyright notices must not be removed, obscured or modified. The article must be linked to Wiley’s version of record on Wiley Online Library and any embedding, framing or otherwise making available the article or pages thereof by third parties from platforms, services and websites other than Wiley Online Library must be prohibited.


Funding Information:
We thankfully acknowledge the funding received from Taylor's University, Malaysia for this study. We thank the participants who attended our presentation at the British Accounting and Finance Association conference, 10–11 April 2018 and provided useful comments. We are also thankful to the discussant and participants at the Malaysian Finance Association meeting on 1–2 August 2018 and Taylor's University research colloquium, 12 March 2018 for sharing their comments.


  • reference rate
  • sukuk pricing
  • systematic risk factors
  • two factor model

ASJC Scopus subject areas

  • Economics and Econometrics
  • Accounting
  • Finance


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