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Significant Difference in the Yields of Sukuk Bonds versus Conventional Bonds

M. Ariff, A. Chazi, Meysam Safari () and A. Zarei

Journal of Emerging Market Finance, 2017, vol. 16, issue 2, 115-135

Abstract: Bond yields of Treasury and corporate bonds are observed in a listed exchange. This article reports the findings on the market yield behaviour of two types of debt securities in the same exchange, the sharia-compliant sukuk bonds and the normal conventional bonds. There are 17 exchanges where sukuk bonds are traded, and the outstanding value is estimated at US$ 1,200 billion. The average yields of sukuk Treasury bonds are significantly higher (premium) than that of conventional Treasury bonds. On the other hand, investors in the sukuk corporate bonds receive slightly lower returns (discount) of about 25 basis points in the case of long-term sukuk bonds. To the best of our knowledge, this is the first study to verify these differences using appropriate advanced econometric methods. These results have far-reaching implications for the market practices as well as for teaching of bond pricing behaviour since this new form of debt markets is growing at about 17 per cent a year. JEL Classification: F23, F31, G12

Keywords: Bond yields; sukuk yields; zero-risk; risky security; bank deposit yields (search for similar items in EconPapers)
Date: 2017
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