Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Dynamic diversification benefits of Sukuk and conventional bonds for the financial performance of MENA region companies: empirical evidence from COVID-19 pandemic period

Dynamic diversification benefits of Sukuk and conventional bonds for the financial performance of... This study aims to investigate the spillover between the Middle East and North Africa (MENA) stock index and several security indices, including Sukuk and conventional bond, and ultimately compare the hedge effectiveness of Sukuk and conventional bond.Design/methodology/approachThe study uses VAR (1)-asymmetric Baba, Engle, Kraft and Kroner-multivariate generalized autoregressive conditional heteroskedasticity (1,1) model to analyze the volatility and shock and asymmetric shock spillover between Sukuk index and several bond indices in the MENA region including, Bond, All Bond, High Yield Bond and Bond and Sukuk and MENA stock market index and ultimately compare the hedging capabilities of Sukuk and conventional bonds by calculating the optimal portfolio weights for securities indices and stock portfolios and hedge effectiveness of security indices.FindingsResults indicate that there is no shock, volatility and asymmetric shock spillover between the Sukuk index and MENA stock index, implying that Sukuk indices behave independently from MENA stock indices; however, there is shock and asymmetric shock spillover between MENA stock indices and security indices that include conventional bonds. The result of optimal portfolio weights and corresponding hedge effectiveness indicate that Sukuk is the most significant asset among other security indices in diversifying and hedging stock MENA portfolios. Moreover, the hedge effectiveness of Sukuk shows persistent trends during both the normal and crisis periods.Practical implicationsThe study suggests that MENA stock market investors and investment managers should add Sukuk instead of the conventional bond to their portfolio to hedge their portfolio against investment risks during both normal and crisis periods.Originality/valueAlthough many studies compare many aspects of Sukuk and conventional bonds, this is the first study that compares the hedge effectiveness of Sukuk and conventional bond based on the time-varying optimal portfolio weights strategy. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Islamic Accounting and Business Research Emerald Publishing

Dynamic diversification benefits of Sukuk and conventional bonds for the financial performance of MENA region companies: empirical evidence from COVID-19 pandemic period

Download PDF
21 pages

Loading next page...
 
/lp/emerald-publishing/dynamic-diversification-benefits-of-sukuk-and-conventional-bonds-for-UJU2tlHOKf

References (38)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1759-0817
DOI
10.1108/jiabr-09-2020-0306
Publisher site
See Article on Publisher Site

Abstract

This study aims to investigate the spillover between the Middle East and North Africa (MENA) stock index and several security indices, including Sukuk and conventional bond, and ultimately compare the hedge effectiveness of Sukuk and conventional bond.Design/methodology/approachThe study uses VAR (1)-asymmetric Baba, Engle, Kraft and Kroner-multivariate generalized autoregressive conditional heteroskedasticity (1,1) model to analyze the volatility and shock and asymmetric shock spillover between Sukuk index and several bond indices in the MENA region including, Bond, All Bond, High Yield Bond and Bond and Sukuk and MENA stock market index and ultimately compare the hedging capabilities of Sukuk and conventional bonds by calculating the optimal portfolio weights for securities indices and stock portfolios and hedge effectiveness of security indices.FindingsResults indicate that there is no shock, volatility and asymmetric shock spillover between the Sukuk index and MENA stock index, implying that Sukuk indices behave independently from MENA stock indices; however, there is shock and asymmetric shock spillover between MENA stock indices and security indices that include conventional bonds. The result of optimal portfolio weights and corresponding hedge effectiveness indicate that Sukuk is the most significant asset among other security indices in diversifying and hedging stock MENA portfolios. Moreover, the hedge effectiveness of Sukuk shows persistent trends during both the normal and crisis periods.Practical implicationsThe study suggests that MENA stock market investors and investment managers should add Sukuk instead of the conventional bond to their portfolio to hedge their portfolio against investment risks during both normal and crisis periods.Originality/valueAlthough many studies compare many aspects of Sukuk and conventional bonds, this is the first study that compares the hedge effectiveness of Sukuk and conventional bond based on the time-varying optimal portfolio weights strategy.

Journal

Journal of Islamic Accounting and Business Research – Emerald Publishing

Published: Sep 3, 2021

Keywords: Sukuk; Bond; VAR-ABEKK-MGARCH; Spillover; Optimal portfolio weights; Hedge effectiveness

There are no references for this article.