Does maturity period alter the degree of risk on sukuk (islamic bond) return? a study among dow jones sukuk index

Abstract

This study attempted to examine the different types of risk embedded in the various maturity periods of sukuk structure and to determine the relationship between the risks and the returns of sukuk. Data were collected from the sukuk market period from 2005 to 2015 on a periodic monthly basis and analyzed using descriptive, correlation and multiple regressions analysis. The test results confirm Dow Jones maturity base confirmed that four models explain 60% to 86 % of variation at 5% significance level. Dow Jones M3T sukuk return, Dow Jones M5T sukuk return, Dow Jones M7T sukuk return and Dow Jones M10T sukuk return are 60%, 69%, 72% and 86% exposed to risk respectively. The significant influence of market risk, credit risk, operational risk and liquidity risk on the sukuk returns in different ways. Further, the results of the analysis on the basis of maturity indicate that, long period of maturity based sukuk market, i.e. Dow Jones M10T sukuk return is highly exposed to risk. Conversely lowest maturity period sukuk is less exposed to risk. As such, it is possible to conclude that when the maturity period is increasing the risk impact also get increased in the sukuk structure. The findings of this study would suggest that maintaining optimal level of inflation, hedging their interest- rate risk and to avoid maturity risk and to promote secondary market for sukuk. Implications, limitations and areas for future research also discussed