Sukuk and bond spreads

Balli, Faruk and Ghassan, Hassan B. and Al-Jefri, Essam H. (2020): Sukuk and bond spreads. Published in: Journal of Economics and Finance No. https://doi.org/10.1007/s12197-021-09545-9 (20 March 2021)

Abstract

Sukuk are considered as an alternative instrument in Islamic finance. However, the structures and provisions make sukuk dissimilar to bonds. Literature is having difficulty in the comparison between the performance/integration of the sukuk and bonds issued at the same time. To fill the existing literature gap on sukuk risk, we focus on the yield spread by comparing the sukuk yield to bond yield through their main determinants by using the data of financial and non-financial firms at weekly level. We use 123 firms that issued both sukuk and bond at the same period for years between 2013 and 2018. We employ sukuk and bonds data that are issued by same company and issued at the same period and market. Accordingly, we are able to minimize factors that raised from sukuk and bonds structure differences. Using the panel generalized least squares estimations, we find that global factors, such as US government yield bonds make significant impact on the sukuk-bond differences. In particular, the negative returns create more significant differences. However, on the other hand, the global shocks in sukuk markets, proxied by DJ sukuk index, are highly limited. By using the quantile analysis, we find that the effects of higher or lower bond spreads do not change.

• Item Type: MPRA Paper
• Language: English
• Keywords: Shariah compliance, Sukuk, Bond market, Global shocks, Risk
• Subjects: F - International Economics > F3 - International Finance; G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages

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