Assessing the safe haven characteristic of Sukuk in Iran's financial market: Fresh evidence for portfolio management

Ahmadian- Yazdi, Farzaneh and Roudari, Soheil and Mensi, Walid (2025): Assessing the safe haven characteristic of Sukuk in Iran's financial market: Fresh evidence for portfolio management.

Abstract

This paper examines the spillover effects between Sukuk and key alternative assets- conventional stock, gold, and currency- in Iran from July 2013 to December 2024. Using three advanced models-Quantile-on-Quantile (Gabauer & Stenfors, 2024), the contemporaneous and lagged R2 decomposed connectedness (Balli et al., 2023), and a portfolio approach (Broadstock et al., 2022)-the study finds that Iran's Sukuk market lacks depth for hedging against gold, currency, and stock risks across direct and reverse quantiles and under various shocks. Results show that the USD is the main contemporaneous driver, while Sukuk is a net receiver in average and contemporaneous connections. Sukuk also offers low long-term returns, making it less competitive. Gold proves optimal for long-term investment, mainly when currency acts short-term. Currency is the primary source of short-term volatility, but Sukuk fails as a stabilizing tool. Thus, including Sukuk in portfolios does not enhance diversification for risk-averse investors during crises due to its limited hedging ability in Iran.

• Item Type: MPRA Paper
• Language: English
• Keywords: Sukuk, Stock market, Gold, Currency, Risk spillover, Portfolio management
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill

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