Modeling dependence structure between green sukuk spread in Malaysia and the uncertainty factors before and during the COVID-19 pandemic

Fatma Hariz, Taicir Mezghani and Mouna Boujelbène Abbes

Journal of Islamic Accounting and Business Research, 2023, vol. 16, issue 5, 950-975

Abstract: Purpose - This paper aims to analyze the dependence structure between the Green Sukuk Spread in Malaysia and uncertainty factors from January 1, 2017, to May 23, 2023, covering two main periods: the pre-COVID-19 and the COVID-19 periods. Design/methodology/approach - This study contributes to the current literature by explicitly modeling nonlinear dependencies using the Regular vine copula approach to capture asymmetric characteristics of the tail dependence distribution. This study used the Archimedean copula models: Student’s-t, Gumbel, Gaussian, Clayton, Frank and Joe, which exhibit different tail dependence structures. Findings - The empirical results suggest that Green Sukuk and various uncertainty variables have the strongest co-dependency before and during the COVID-19 crisis. Due to external uncertainties (COVID-19), the results reveal that global factors, such as the Infect-EMV-index and the higher financial stress index, significantly affect the spread of Green Sukuk. Interestingly, in times of COVID-19, its dependence on Green Sukuk and the news sentiment seems to be a symmetric tail dependence with a Student’s-tcopula. This result is relevant for hedging strategies, as investors can enhance the performance of their portfolio during the COVID-19 crash period. Originality/value - This study contributes to a better understanding of the dependency structure between Green Sukuk and uncertainty factors. It is relevant for market participants seeking to improve their risk management for Green Sukuk.

Keywords: COVID-19 pandemic; Green Sukuk spread; Uncertainty factors; R-vine copula approach (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jiabrp:jiabr-10-2022-0285

DOI: 10.1108/JIABR-10-2022-0285

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