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Sukuk vs. Eurobonds

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Author Info

  • Faezeh Raei
  • Selim Cakir
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    Abstract

    This paper assesses the impact of bonds issued according to Islamic principles (Sukuk), on the cost and risk structure of investment portfolios by using the Value-at-Risk (VaR) framework. The market for Sukuk has grown tremendously in recent years at about 45 percent a year. Sukuk provide sovereign governments and corporations with access to the huge and growing Islamic liquidity pool, in addition to the conventional investor base. The paper analyzes whether secondary market behavior of Eurobonds and Sukuk issued by the same issuer are significantly different to provide gains from diversification. The analysis, employing the delta-normal as well as Monte-Carlo simulation methods, implies such gains are present and in certain cases very significant.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/237.

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    Length: 20
    Date of creation: 01 Oct 2007
    Date of revision:
    Handle: RePEc:imf:imfwpa:07/237

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    Related research

    Keywords: Islamic banking; Eurobond market; sukuk; bond; conventional bonds; islamic bonds; bond portfolios; bond markets; islamic development; islamic securities; islamic economy; corporate bond; corporate bond markets; bond issuer; bonds; islamic finance; eurobonds; ijarah; bond portfolio; development of corporate bond markets; international capital; islamic investment; financial institutions; international capital markets; islamic investment bank; musharakah; islamic principles; domestic bonds; eurobond; financial stability; international bond; international bond markets; financial system; islamic instruments; international finance;

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    References

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    1. P. Hartmann & S. Straetmans & C. G. de Vries, 2004. "Asset Market Linkages in Crisis Periods," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 313-326, February.
    2. Mirakhor, Abbas & Zaidi, Iqbal, 1988. "Stabilization and Growth in an Open Islamic Economy," MPRA Paper 56003, University Library of Munich, Germany.
    3. Haque, Nadeem ul & Mirakhor, Abbas, 1999. "The Design of Instruments For Government Finance in An Islamic Economy," MPRA Paper 56028, University Library of Munich, Germany.
    4. Khan, Mohsin S & Mirakhor, Abbas, 1990. "Islamic Banking: Experiences in the Islamic Republic of Iran and in Pakistan," Economic Development and Cultural Change, University of Chicago Press, vol. 38(2), pages 353-75, January.
    5. Abbas Mirakhor & Mohsin S. Khan, 1991. "Islamic Banking," IMF Working Papers 91/88, International Monetary Fund.
    6. El-Hawary & Dahlia & Grais, Wafik & Iqbal, Zamir, 2004. "Regulating islamic financial institutions : The nature of the regulated," Policy Research Working Paper Series 3227, The World Bank.
    7. Mirakhor, Abbas, 2007. "Islamic Finance and Globalization: A Convergence?," MPRA Paper 56026, University Library of Munich, Germany.
    8. Michael T. Gapen & Dale F. Gray & Cheng Hoon Lim & Yingbin Xiao, 2005. "Measuring and Analyzing Sovereign Risk with Contingent Claims," IMF Working Papers 05/155, International Monetary Fund.
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    Cited by:
    1. Giorgio Gomel & Angelo Cicogna & Domenico De Falco & Marco Valerio Della Penna & Lorenzo Di Bona De Sarzana & Angela Di Maria & Patrizia Di Natale & Alessandra Freni & Sergio Masciantonio & Giacomo Od, 2010. "Islamic finance and conventional financial systems. Market trends, supervisory perspectives and implications for central banking activity," Questioni di Economia e Finanza (Occasional Papers) 73, Bank of Italy, Economic Research and International Relations Area.

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