Do regional and global uncertainty factors affect differently the conventional bonds and sukuk? New evidence

In this paper, we contribute to the on-going discussion on whether Islamic bonds (sukuk) are different from conventional bonds. We investigate the impact of regional and global uncertainty factors including financial and economic uncertainty on conventional bonds and sukuk returns dynamics. Using quantile regression approach for the period from January 2010 to December 2014, empirical results show independence between sukuk returns and global and regional economic policy uncertainty for all the quantiles, but causality relationship when the market is bearish. However we find co-movement and causality relationship between conventional bond market and global financial and economic uncertainty factors. For comparison purpose, we examine the impact of global and regional uncertainty factors on the sukuk returns in the case of the largest country sukuk market in the world which is for Malaysia. Our findings confirm that sukuk are different than conventional bonds in term of co-movement with global and regional uncertainty factors and these two assets are complementary and not substitutes.