The risk analysis of Sukuk : an empirical evidence from Pakistan

Abstract EN

Ṣukūk is an innovative financial instrument with a flexible structure based on Sharīʿah, unlike a bond which is based on an interest-based structure.

With the notion that ṣukūk contracts are significantly different from ordinary bonds, it is in high demand especially in Muslim countries to overcome liquidity problems.

Ṣukūk has a key importance in the financial market, and literature is lacking on how to predict the trend and volatility of ṣukūk in the case of Pakistan, where debt instruments are high in demand.

Thus, this investigation intends to inspect the volatility and trends analysis of the ṣukūk industry in Pakistan.

The study sample consists of six ṣukūk issued in Pakistan, for which the daily data was collected.

For this purpose, this study employed the ARCH, GARCH, EGARCH, and TGARCH models to analyze the risk behavior of the ṣukūk industry in Pakistan.

Results revealed that Engro Corporation ṣukūk yield is higher and less volatile among other ṣukūk returns.

The results testify that there is volatility in all corporate ṣukūk returns of different maturities.

Additionally, it is found that smaller tenure ṣukūk had high volatility as compared to larger tenure ṣukūk, and that bad news and events have larger effects on volatility of the ṣukūk return than good news.

The findings of this study shall be beneficial for investors, portfolio managers, and decision-making authorities to invest in the low-risk profile ṣukūk as debt instruments in Pakistan