When it Comes to Risk, Is Sukuk Better Than Conventional Bonds? A Comparative Study of NASDAQ Securities

Farah, Ahmed-Nur Ali; Avdukic, Alija; Khaleel, Fawad

Abstract

This chapter analyses the risk levels of sukuk portfolio compared to conventional bonds, using a sample data that is extracted from daily closing prices of Sukuk and bonds that are traded in Nasdaq Dubai’s security market. The recent data show that global interest in Sukuk instruments as an alternative source of financing has risen, due to its asset back structure. Whereas, discussion founded on the distinct riskiness of Sukuk, when compared to conventional bonds, remains a contentious topic. We conduct a comparative analysis on the risks associated with Sukuk and conventional. We examine the risk levels by measuring and comparing VaR values of both Sukuk and traditional bonds. We also conduct historical and Monte Carlo simulation by incorporating the daily returns of 15 Sukuk and 15 conventional bonds sampled from the Nasdaq Dubai's security market. Results highlight that the daily returns of Sukuk and conventional bonds are significantly different as Sukuk are exposed to daily losses compared to conventional bonds leading to the conclusion that a Sukuk portfolio is riskier than conventional bonds.

Citation

Farah, A. A., Avdukic, A., & Khaleel, F. (2022). When it Comes to Risk, Is Sukuk Better Than Conventional Bonds? A Comparative Study of NASDAQ Securities. In T. Azid, M. Mukhlisin, & O. Altwijry (Eds.), Wealth management and investment in Islamic settings: opportunities and challenges (283-312). Singapore: Springer. https://doi.org/10.1007/978-981-19-3686-9_17

• Acceptance Date: Dec 18, 2019
• Online Publication Date: Sep 30, 2022
• Publication Date: 2022-09
• Deposit Date: Feb 25, 2020
• Publicly Available Date: Oct 1, 2024
• Publisher: Springer
• Pages: 283-312
• Book Title: Wealth management and investment in Islamic settings: opportunities and challenges
• ISBN: 978-981-19-3685-2
• DOI: https://doi.org/10.1007/978-981-19-3686-9_17
• Keywords: Sukuk market, conventional bond, Value at Risk (VaR)
• Public URL: http://researchrepository.napier.ac.uk/Output/2587871