Abstract:
Purpose: The aim of this study is to examine the effect of financial stress and global
uncertainty such as inflation, Crude oil gold price volatility, economic policy, and
geopolitical risk on the return dynamics of conventional and Sukuk bonds. We investigate the
possibilities of diversification through Sukuk by employing methodologies that provide
extensive insights into the effects of doubtful variables on Sukuk and conventional returns in
various market conditions.
Methodology & Design: The empirical results of a multiple regression method for the year
January 2010 to December 2020 demonstrate a relation between sukuk returns and global
uncertainty. We do, however, identify a causal link between conventional bond markets and
financial and economic instability globally.
Findings: Our findings show that sukuk perform better than conventional bonds in the
context of global uncertainty, and that the two assets are complimentary rather than
substitutive.
Limitations: Sukuk investments can be used to diversify conventional bonds in certain
circumstances. Sukuk and conventional bonds, for example, can spread risk in the event of a
gold price shift, and such diversification may also be accomplished in the event of an
inflation shock.
Recommendations: This study will provide investors a clear picture to policymakers and
investors whether they should invest in Sukuk or conventional markets
