Are Sukuk Securities the Same as Conventional Bonds?

Abstract:     
Sukuk securities have some similar features with bond securities. These similarities have been highlighted so the financial press has described these securities to be similar to conventional bonds, despite important differences of these securities. This paper investigates this matter empirically by first examining the yield to maturities of sukuk securities and conventional counterparts for various issuers and maturities. Our results show a significant yield difference between sukuk and conventional bonds of same quality and term. Moreover, results of Granger causality test do not show a general causal relation between yields these two types of securities. Some differences between yield curves of Islamic securities and conventional bonds of different types of issuers are identified in the Bursa Malaysia. Finally, effect of issuance of ijarah sukuk on issuing firm’s beta is studied. The results shows that the absolute change in beta of the firm is significant, which needs careful interpretation.

Number of Pages in PDF File: 31

Keywords: Sukuk, Bonds, Yield curve, Yield to maturity, Islamic finance

JEL Classification: Z10

working papers series