Analysis of value at risk of Sukuk and conventional bonds in Pakistan
Journal of Islamic Accounting and Business Research
ISSN: 1759-0817
Article publication date: 4 September 2017
Abstract
Purpose
The purpose of this paper is to provide empirical evidence that Sukuk are different from conventional bonds from risk perspective. This study is about the comparative risk analysis of Sukuk and conventional bonds in Pakistan.
Design/methodology/approach
Sample consists of 15 Sukuk and 30 Term Finance Certificates issued in Pakistan. Value at risk is deployed by using delta normal approach to calculate risk. Two portfolios are formed separately with equal investment of ₹3m to explore the maximum loss an investor would have in portfolio of Sukuk and conventional bonds separately.
Findings
Results revealed that Sukuk are less risky and more stable instrument as compared to conventional bonds. Risk and stability of Sukuk are explained with diversification theory and liquidity perspective. It is found that correlation among most of Sukuk securities are less or negative, which help in diversifying their risk. However, the attribute of stability can be due to the few days of trading in case of Sukuk comparatively.
Originality/value
Literature has explored the operational differences between conventional and Islamic bonds on theoretical basis. However, few studies explain their differences empirically especially with respect to risk in case of Pakistan where debt market is developing. Therefore, the originality of this research lies within its comparative investigation of risk for two securities that are different from their operational perspectives.
Keywords
Citation
Nasir, A. and Farooq, U. (2017), "Analysis of value at risk of Sukuk and conventional bonds in Pakistan", Journal of Islamic Accounting and Business Research, Vol. 8 No. 4, pp. 375-388. https://doi.org/10.1108/JIABR-01-2014-0004
Publisher
:Emerald Publishing Limited
Copyright © 2017, Emerald Publishing Limited