Clientele Effects in Sovereign Bonds: Evidence from the Malaysian Cash and Repo Markets

79 Pages Posted: 26 Jun 2018 Last revised: 30 Apr 2019

See all articles by Minxia Chen

Minxia Chen

National University of Singapore (NUS)

Joseph Cherian

NUS Business School

Yuping Shao

National University of Singapore (NUS)

Marti G. Subrahmanyam

New York University (NYU) - Department of Finance

Date Written: April 29, 2019

Abstract

Controlling for bond characteristics and liquidity, clientele effects in Malaysian bonds cause Islamic sovereign bonds to have a 4.8 bps higher yield than their conventional counterparts. Using transaction-level bond data, we document three channels for these effects: First, from the selling of conventional bonds by foreign investors during the 2008-2009 crisis; Second, from the rise in foreign holdings, and the corresponding fall in bond yields, when Islamic bonds were added to the JP Morgan Emerging Market Bond Index; Third, from the active repo market with higher "specialness," that conventional sovereign bonds enjoy, which also leads to a wider yield spread.

Keywords: Clientele Effect, Liquidity, Credit Risk, Sovereign Sukuk, Islamic Sovereign Bond, Conventional Sovereign Bond

JEL Classification: G11, G12, G18

Suggested Citation

Chen, Minxia and Cherian, Joseph and Shao, Yuping and Subrahmanyam, Marti G., Clientele Effects in Sovereign Bonds: Evidence from the Malaysian Cash and Repo Markets (April 29, 2019). Available at SSRN: https://ssrn.com/abstract=3198506 or http://dx.doi.org/10.2139/ssrn.3198506

Minxia Chen (Contact Author)

National University of Singapore (NUS) ( email )

Bukit Timah Road 469 G
Singapore, 117591
Singapore

Joseph Cherian

NUS Business School ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore
+65-6516-5991 (Phone)

HOME PAGE: http://bschool.nus.edu/biography#JosephCherian

Yuping Shao

National University of Singapore (NUS) ( email )

Bukit Timah Road 469 G
Singapore, 117591
Singapore

Marti G. Subrahmanyam

New York University (NYU) - Department of Finance ( email )

Stern School of Business,
44 West 4th Street, Suite 9-68
New York, NY 10012-1126
United States
212-998-0348 (Phone)
212-995-4233 (Fax)

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