Relationship between crude oil prices and global sukuk (islamic bond) index: evidence from Dow Jones Citygroup sukuk index

Hassan, Fatimatul and Masih, Mansur (2018): Relationship between crude oil prices and global sukuk (islamic bond) index: evidence from Dow Jones Citygroup sukuk index.

Abstract

The global Islamic bond started gaining attention in capital markets just a few years ago. Since the launch of Dow Jones Citygroup Sukuk Index in 2006 , the number of issuance of global Islamic bonds has been sharply increasing. Saudi Arabia, UAE and Qatar had become major issuers of global bonds which are highly demanded by the investors .The rationale behind this might be because of religious commitment to get involved in riba (interest)-free investment or might be due to some other contributing factors. Realizing that the majority of global sukuk issuer is from the oil exporting countries, it might be related to the price of crude oil. This study attempts to find out the possible impact of the oil price on the global sukuk index using standard time series techniques. The findings evidence a significant relationship between the crude oil price and the global sukuk index. The US interest rate also influenced the global sukuk index based on the fact that the sukuk is denominated in US dollar and the interest rate had an inverse relationship with the bond price. Thus, crude oil price and the US interest rate should be taken into consideration by the global sukuk issuer as well as the investors. From this study, the investors might take the increase in crude oil prices as a positive signal and be motivated to buy global sukuk especially from the oil producing countries as it would give them a good yield on global sukuk. From the perspective of bond issuers, the appreciation or depreciation of US dollar against other currencies was one of the factors which affected their decision to issue global sukuk or not. An US interest rate affected the exchange rate of US dollar, since an increase in US interest rate led to the appreciation of US dollar in the short term and therefore influenced the global sukuk prices as well.

• Item Type: MPRA Paper
• Language: English
• Keywords: Global sukuk (Islamic bond), oil price, VECM, VDC
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q43 - Energy and the Macroeconomy

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