Dynamic transmissions between Sukuk and bond markets

•We examine the returns and volatility spillovers of Sukuk and global bonds with equities.•We find that Sukuk are distinctive from conventional bonds in terms of their transmission mechanism.•The returns and volatility spillovers between Sukuk and bonds are weak.•The frequency of jumps has considerably increased in Sukuk and in other markets since the global financial crisis.•There was also a weak of co-jumps between Sukuk and global bonds.

In this article we contribute to the recent debate on the difference between Islamic bonds (Sukuk) and conventional bonds by investigating returns and volatility spillovers of Sukuk and global bonds with equities. The dynamic spillover index methodology proposed by Diebold and Yilmaz (2012) indicates different transmission mechanisms of Sukuk compared to bonds. The main distinctive features of the Sukuk market are the higher transmission of information from equities, and the weaker transmission of information from the Sukuk market to other markets. Thus, this paper highlights the importance of Sukuk in the strategic asset allocation and hedging of international investors.