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Spillovers between Sukuks and Shariah-compliant equity markets

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  • Balli, Faruk
  • Billah, Mabruk
  • Balli, Hatice Ozer
  • De Bruin, Anne

Abstract

In this paper, we quantify the directional spillovers from sukuk (Islamic bond) markets to Shariah-compliant equity markets and vice versa. The directions and magnitudes of spillovers are quite disperse among different countries and Islamic equity and sukuk markets. Novel to the literature, we find that profitability and liquidity positions of the Islamic firms and market size are highly influential on the magnitude of spillovers between two markets. In particular firms from deeper markets (higher market capitilization) with better liquidity position (better debt to asset ratios) makes less spillovers from sukuk and equity markets interestingly, deeper markets and higher profitability ratios of the firms makes greater spillovers from equity to sukuks markets. We also create a matched sample for 38 firms that issued both sukuks and Islamic equities. Implementing similar spillover models to the matched sample, we indicate that firm-level profitability and liquidity positions of firms are essential in modelling the magnitude of the spillovers between sukuks and equities.

Suggested Citation

  • Balli, Faruk & Billah, Mabruk & Balli, Hatice Ozer & De Bruin, Anne, 2022. "Spillovers between Sukuks and Shariah-compliant equity markets," Pacific-Basin Finance Journal, Elsevier, vol. 72(C).
    • Handle: RePEc:eee:pacfin:v:72:y:2022:i:c:s0927538x22000208
    DOI: 10.1016/j.pacfin.2022.101725
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    5. Ali, Fahad & Bouri, Elie & Naifar, Nader & Shahzad, Syed Jawad Hussain & AlAhmad, Mohammad, 2022. "An examination of whether gold-backed Islamic cryptocurrencies are safe havens for international Islamic equity markets," Research in International Business and Finance, Elsevier, vol. 63(C).

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    More about this item

    Keywords

    Sukuks; Islamic equity indices; Spillovers; Liquidity and profitability ratios; Market size;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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