Abstract:
The sukuk and conventional bonds have some characteristics that are similar to
conventional bonds, so some people think both bonds are behave or act same way in
the bond market. To examine the behavior of both bonds this study used Malaysian
bond market and Pakistan bond market with the comparison of sukuk and
conventional bonds. Because both countries are Islamic countries and uses Sukuk
bond as alternative debt instrument for generating funds. Secondary and daily time
series data, bond prices is used in this study that consists of government treasury
bonds (T-bonds) of 3 year, 5 year and 10 year and Shari’ah compliant sukuk bonds
that include 3 year, 5 year and 10 year government Ijarah sukuk bonds of both
countries Pakistan and Malaysia. The data on Malaysian bond market was taken from
the period 31st Dec, 2004 to 19th June 2020 and on Pakistan bond market the data was
taken from the period 21st Jan 2011 to 19th June 2020. The descriptive statistic was
used to check the normality of data and Augmented Dickey Fuller (ADF) method was
used for stationarity. The granger Causality test was used to examine whether the
change in conventional bonds return does have impact on sukuk bonds returns. And
whether the change in sukuk returns does have impact on conventional bonds returns.
The result conclude that the returns of conventional bond did not granger cause sukuk
bonds returns. And sukuk bonds returns does not granger cause conventional bonds
return. The change in returns of one type of bond does not effect and influence the
other type of bond. They both behave differently in bond market in terms of return.
But the 5 year Pakistan Sukuk Ijarah and T bonds F statistic value is below 0.05
which indicates that the change in ones returns also impact the change in other but its
probability is above 0.05 which indicates insignificant relationship. However the
overall result is that both bonds nor impacts each other and neither behaves same way
in a bond market.
