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Clientele Effect in Sovereign Bonds: Evidence From Islamic Sukuk Bonds in Malaysia

Author

Listed:
  • Minxia Chen
  • Joseph Cherian
  • Ziyun Li
  • Yuping Shao
  • Marti G. Subrahmanyam

Abstract

The demand for Malaysian Islamic bonds (Sukuk), in the largest and most active Islamic market in the world, comes from two sources: conventional and Islamic investors, with the latter group holding only Islamic bonds by mandate. Surprisingly, Malaysian Islamic sovereign bonds have a 4.8 bps higher yield than their conventional counterparts, ceteris paribus. We attribute this spread to foreign institutional investors participating actively in the conventional market, but not as much in the Islamic market. Using transaction-level data, we document four pieces of evidence that point towards clientele effects, particularly for foreign investors, which affect the yield spread.

Suggested Citation

  • Minxia Chen & Joseph Cherian & Ziyun Li & Yuping Shao & Marti G. Subrahmanyam, 2022. "Clientele Effect in Sovereign Bonds: Evidence From Islamic Sukuk Bonds in Malaysia," Critical Finance Review, now publishers, vol. 11(3-4), pages 677-745, August.
    • Handle: RePEc:now:jnlcfr:104.00000124
    DOI: 10.1561/104.00000124
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    Cited by:

    1. Jappelli, Ruggero & Pelizzon, Loriana & Subrahmanyam, Marti G., 2023. "Quantitative easing, the repo market, and the term structure of interest rates," SAFE Working Paper Series 395, Leibniz Institute for Financial Research SAFE.

    More about this item

    Keywords

    Clientele effect; Liquidity; Credit risk; Sovereign Sukuk; Islamic sovereign bond; Conventional sovereign bond; Ramadan; Sovereign repo market;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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