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A Drivers of Islamic Bond Liquidity in Malaysia: Latent Liquidity Approach

Author

Listed:
  • Rusmawati Said
  • Wan Nurhanan Wan Suhaimi
  • Norhuda Abd Rahim
  • Asmaddy Haris

Abstract

A steady liquidity level is an importance characteristic of a financial market, especially after the 2008 financial crisis. The Islamic financial market was virtually isolated from the crisis. It is interesting to explore the underlying determinants that stabilise a market’s liquidity level. This paper studies the determinants of a Sukuk’s liquidity level in the Malaysian bond market using a new liquidity measure known as latent liquidity. The measure does not require transaction data, which makes it applicable to an illiquid market such as the Malaysian bond market. Utilising data from the Malaysian bond market, the paper involves two steps of data analyses, namely an insight into the trend and the liquidity level of the Sukuk market. It then continues to investigate the driver of Sukuk’s liquidity using the latent liquidity as a proxy against five Sukuk characteristics in a random effect regression model. Four variables issuance amount, maturity, coupon rate, and age are found to be significant drivers of Sukuk’s liquidity level. Conclusions drawn from the regression results indicate Sukuk’s investors’ preference in matching long term Sukuk with their long term liabilities, in addition to their fondness for keeping their Sukuk to amortise the return.

Suggested Citation

  • Rusmawati Said & Wan Nurhanan Wan Suhaimi & Norhuda Abd Rahim & Asmaddy Haris, 2018. "A Drivers of Islamic Bond Liquidity in Malaysia: Latent Liquidity Approach," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 10(10), pages 1-85, October.
    • Handle: RePEc:ibn:ijefaa:v:10:y:2018:i:10:p:85
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    References listed on IDEAS

    as
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    2. Dick-Nielsen, Jens & Feldhütter, Peter & Lando, David, 2012. "Corporate bond liquidity before and after the onset of the subprime crisis," Journal of Financial Economics, Elsevier, vol. 103(3), pages 471-492.
    3. Raphael Schestag & Philipp Schuster & Marliese Uhrig-Homburg, 2016. "Measuring Liquidity in Bond Markets," The Review of Financial Studies, Society for Financial Studies, vol. 29(5), pages 1170-1219.
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    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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