Comparative analysis between global sukuk and bond indices: value-at-risk approach
Journal of Islamic Accounting and Business Research
ISSN: 1759-0817
Article publication date: 29 January 2020
Issue publication date: 21 May 2020
Abstract
Purpose
Sukuk is an innovative financial instrument with a flexible structure based on Islamic financial contracts, unlike a bond which is based on the structure of a loan imposed with interest. With the notion that sukuk differs considerably from the conventional bonds in terms of risks related to investment, this study aims to examine whether the sukuk market is different from conventional bond markets based on the value-at-risk (VaR) approach.
Design/methodology/approach
The VaR of a portfolio consists of sukuk and bond indices and is undertaken to determine whether there is any reduction in the VaR amount through the inclusion of the sukuk index in the portfolio. The analysis is undertaken based on the developed and emerging market bond and sukuk indices from January 2010 to December 2015.
Findings
This paper examines whether the VaR of sukuk market differs from conventional bond markets by using fundamental techniques. It was observed that the VaR amount of sukuk indices is comparatively much lower than the VaR of bond indices in all the cases. Including the sukuk index with each bond index can reduce the VaR of the portfolio by around 30 to 50 per cent for all the developed and emerging market bond indices.
Research limitations/implications
This research is limited to covering six years of data. Nonetheless, it is able to provide findings which are believed to be useful for the market players.
Practical implications
This study unveils attractive opportunities in terms of diversification benefits of sukuk indices for international fixed-income portfolios.
Originality/value
The VaR method is a useful risk management tool. This study uses this method to emphasise the significant reduction of risks and diversification benefits that sukuk investment could offer by including it in the investment portfolio.
Keywords
Acknowledgements
The authors are deeply grateful to Co-Editor Dr Mohammad Hudaiband and the anonymous reviewers for their helpful comments which improved the quality of the paper greatly. The authors acknowledge and assume responsibility for any mistakes or errors within the manuscript.
Citation
Bhuiyan, R.A., Puspa, M., Saiti, B. and Ghani, G.M. (2020), "Comparative analysis between global sukuk and bond indices: value-at-risk approach", Journal of Islamic Accounting and Business Research, Vol. 11 No. 6, pp. 1245-1256. https://doi.org/10.1108/JIABR-02-2018-0019
Publisher
:Emerald Publishing Limited
Copyright © 2020, Emerald Publishing Limited