Modelling the Government Sukuk Market Volatility Evidence from Malaysia

20 Pages Posted: 15 Oct 2018

See all articles by Driss Alaoui Elmrani

Driss Alaoui Elmrani

University of Hassan I - National School of Business and Management

Said El Mezouar

University of Hassan I - National School of Business and Management

Date Written: September 20, 2018

Abstract

The financial crises caused a collapse in prices of most asset classes, fueling interest in alternatives to traditional asset classes that might be less affected by large market gyrations such as Sukuk, fast growing but often misunderstood market.

In this light, we investigate the statistical properties of the Thomson Reuters BPAM Government Sukuk Index and explore its volatility with their conterparts the Thomson Reuters BPAM government bond index. We found that the TR BPMA Government Sukuk index shares all stylized facts of traditional asset classes, and estimations results are also in line with prevalent findings in the literature.

As we detected heteroscedasticity effect, we modeled the returns both of the TR BPMA Government Sukuk and its conventional counterpart, and we compared their volatility using the GARCH model. The results show that the volatility is more persistent for the government Sukuk to its conventional counterpart. But, the Government Sukuk index was slightly less volatile than the Government Bond index at a long run.

The study also provides evidence for the existence of the asymmetric effect (leverage) captured by the parameter of EGARCH (1, 1) model. It shows that negative shocks have significant effect on conditional variance (volatility) for the Government Sukuk. Which means that bad news had better impact on volatility than good news in this market. It indicate also that the Malaysian Government Sukuk market moves to more efficient condition.

Keywords: Government Sukuk, daily returns,conditional volatility,GARCH models and leverage effect, post crisis period

Suggested Citation

Alaoui Elmrani, Driss and El Mezouar, Said, Modelling the Government Sukuk Market Volatility Evidence from Malaysia (September 20, 2018). Available at SSRN: https://ssrn.com/abstract=3252635 or http://dx.doi.org/10.2139/ssrn.3252635

Driss Alaoui Elmrani (Contact Author)

University of Hassan I - National School of Business and Management ( email )

Settat
Morocco

Said El Mezouar

University of Hassan I - National School of Business and Management

Settat
Morocco

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