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

Minxia Chen, Joseph Cherian, Ziyun Li, Yuping Shao and Marti G. Subrahmanyam

Critical Finance Review, 2022, vol. 11, issue 3-4, 677-745

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.

Keywords: Clientele effect; Liquidity; Credit risk; Sovereign Sukuk; Islamic sovereign bond; Conventional sovereign bond; Ramadan; Sovereign repo market (search for similar items in EconPapers)
JEL-codes: G11 G12 G18 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:now:jnlcfr:104.00000124

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