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Why do sukuks (Islamic bonds) need a different pricing model?

Research output: Contribution to journalArticlepeer-review

  • Md Hamid Uddin
  • Sarkar H. Kabir
  • Mohammad Kabir Hassan
  • Mohammed S. Hossain
  • Professor Jia Liu
The global interest in sukuk, an Islamic alternative to bond financing, has grown rapidly, particularly after the 2008 global financial crisis, due to its distinctive features and investment quality. Sukuk were first launched in Malaysia and are presently available in 29 countries, including the United Kingdom, United States, Singapore, Hong Kong, and Luxembourg. Despite the global market prevalence of sukuk, asset pricing literature has not yet addressed the pricing mechanism of sukuk, which is inherently different from bonds and equity due to the contractual differences. However, analysts use LIBOR, or the Islamic interbank benchmark rate (IIBR), as the ad-hoc benchmark to evaluate sukuk performance. In this study, we develop a basic pricing model that captures the common risks in sukuk returns. We identify two risk factors for sukuk that require risk premiums: (i) sukuk market risk and (ii) information asymmetry risk. Using these two common sukuk risks factors, investment analysts can estimate the fair value of sukuk more precisely than other ad hoc measures available.
Original languageEnglish
JournalInternational Journal of Finance and Economics
Early online date17 Sep 2020
DOIs
Publication statusEarly online - 17 Sep 2020

Documents

  • LIU_2020_cright_Why do Sukuks (Islamic Bonds) need a different pricing model

    Rights statement: This is the peer reviewed version of the following article: Md Hamid Uddin Sarkar, H. Kabir, Mohammad Kabir Hassan, Mohammed S. Hossain & Jia Liu, 'Why do sukuks (Islamic bonds) need a different pricing model?'. International Journal of Finance & Economics, which has been published in final form at https://doi.org/10.1002/ijfe.2269. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions.

    Accepted author manuscript (Post-print), 579 KB, PDF document

    Due to publisher’s copyright restrictions, this document is not freely available to download from this website until: 17/09/22

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