An investigation of Sukuk structure risk

  • Mohammed W. Alswaidan

    Student thesis: Doctoral Thesis

    Abstract

    Despite the large and rapidly growing research literature on Sukuk risk analysis, little is known about the risk caused by different Sukuk structures. Drawing on the research literature and practice of Islamic finance, the study argues that different Sukuk structures affect the risk/expected return profile of Sukuk. Thus, risk classification schemes based on Sukuk structure provide significant insights into Sukuk risk not obtainable from conventional schemes. This is because Sukuk structure risk classification schemes link Sukuk risk more directly to the fundamental causal factors creating those risks. These links are less evident in conventional risk classification schemes. In the empirical research the deductive approach is applied. Statistical methods, including multifactor regression analysis are applied to a unique proprietary Sukuk data set provided by Ideal ratings, Inc. Sukuk structure risks will be correctly priced in an efficient market. However, the results of this study show that Sukuk structure risk factors have no power in explaining Sukuk market returns. The results of the thesis imply significant mispricing in Sukuk markets. This conclusion is in line with the comparative analysis of the risk/expected return profiles of Sukuk and conventional bond indices also reported in this study. These results on the informational inefficiency of Sukuk markets have significant implications for issuers, investors, governments, regulators, scholars and researchers.
    Date of AwardJan 2017
    Original languageEnglish
    Awarding Institution
    • University of Portsmouth
    SupervisorArief Daynes (Supervisor) & Paraskevas Pagas (Supervisor)

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