Determinants of sukuk’s liquidity level in Malaysia using latent liquidity measure

Subprime crisis in 2008 has surged the vital importance of a steady liquidity level in the market. Theoretically, Islamic financial market’s unique risk-sharing structure could provide some form of protection to its products and practitioners form being severely hit by the turmoil. Islamic bond, als...

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Main Author:	Wan Suhaimi, Wan Nurhanan
Format:	Thesis
Language:	English
Published:	2014
Subjects:	Capital market - Religious aspects - Islam Capital market (Islamic law) Bonds (Islamic law)
Online Access:	http://psasir.upm.edu.my/id/eprint/70160/1/FEP%202014%2019%20-%20IR.pdf
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spelling	my-upm-ir.701602019-10-31T04:16:57Z Determinants of sukuk’s liquidity level in Malaysia using latent liquidity measure 2014-07 Wan Suhaimi, Wan Nurhanan Subprime crisis in 2008 has surged the vital importance of a steady liquidity level in the market. Theoretically, Islamic financial market’s unique risk-sharing structure could provide some form of protection to its products and practitioners form being severely hit by the turmoil. Islamic bond, also known as sukuk, is the most popular component offered by the Islamic financial market. However, study on the liquidity level of sukuk in Malaysia shows a decreasing liquidity level by sukuk during the crisis period. The contradiction between the theory and actual figures provides a gap in knowledge, hence spurs this study to determine the drivers of sukuk liquidity level in Malaysia market and to possibly apprehend the pattern and preference of sukuk investors. We study the determinants of sukuk’s liquidity level in Malaysia bond market using a measure known as “latent liquidity”. The measure does not require much reliance on transaction data which makes it applicable to an illiquid market like Malaysia bond market. By utilising data from approximately more than 263 sukuk in Malaysia bond market, the study uses latent liquidity measure to examine the liquidity level of sukuk that maintain their trading activities throughout 2007-2012. The generated latent liquidity levels would then be used to determine the liquidity drivers for sukuk. Five bond characteristics (issuance amount, age, maturity, credit rating and coupon rate) are tested against sukuk’s latent liquidity level, with four characteristics (issuance amount, age, maturity and coupon rate) are found to be significantly related to sukuk’s liquidity level at 10% confidence level. On the other hand, the direction of correlation between issuance amount, maturity, age and credit rating variables towards liquidity is consistent with past literatures; issuance amount is positively related to liquidity while the other variables negatively correlated to liquidity. Sukuk investors’ preference to lock in buy-and-hold position in amortising the return and also their keenness to match their long term liability with sukuk are two imminent behaviours of sukuk investors concluded form the findings. Such findings are believed to provide better apprehension on sukuk investors’ behaviour and enable faster development in Malaysia Islamic financial system. Capital market - Religious aspects - Islam Capital market (Islamic law) Bonds (Islamic law) 2014-07 Thesis http://psasir.upm.edu.my/id/eprint/70160/ http://psasir.upm.edu.my/id/eprint/70160/1/FEP%202014%2019%20-%20IR.pdf text en public masters Universiti Putra Malaysia Capital market - Religious aspects - Islam Capital market (Islamic law) Bonds (Islamic law)
institution	Universiti Putra Malaysia
collection	PSAS Institutional Repository
language	English
topic	Capital market - Religious aspects - Islam Capital market (Islamic law) Bonds (Islamic law)
spellingShingle	Capital market - Religious aspects - Islam Capital market (Islamic law) Bonds (Islamic law) Wan Suhaimi, Wan Nurhanan Determinants of sukuk’s liquidity level in Malaysia using latent liquidity measure
description	Subprime crisis in 2008 has surged the vital importance of a steady liquidity level in the market. Theoretically, Islamic financial market’s unique risk-sharing structure could provide some form of protection to its products and practitioners form being severely hit by the turmoil. Islamic bond, also known as sukuk, is the most popular component offered by the Islamic financial market. However, study on the liquidity level of sukuk in Malaysia shows a decreasing liquidity level by sukuk during the crisis period. The contradiction between the theory and actual figures provides a gap in knowledge, hence spurs this study to determine the drivers of sukuk liquidity level in Malaysia market and to possibly apprehend the pattern and preference of sukuk investors. We study the determinants of sukuk’s liquidity level in Malaysia bond market using a measure known as “latent liquidity”. The measure does not require much reliance on transaction data which makes it applicable to an illiquid market like Malaysia bond market. By utilising data from approximately more than 263 sukuk in Malaysia bond market, the study uses latent liquidity measure to examine the liquidity level of sukuk that maintain their trading activities throughout 2007-2012. The generated latent liquidity levels would then be used to determine the liquidity drivers for sukuk. Five bond characteristics (issuance amount, age, maturity, credit rating and coupon rate) are tested against sukuk’s latent liquidity level, with four characteristics (issuance amount, age, maturity and coupon rate) are found to be significantly related to sukuk’s liquidity level at 10% confidence level. On the other hand, the direction of correlation between issuance amount, maturity, age and credit rating variables towards liquidity is consistent with past literatures; issuance amount is positively related to liquidity while the other variables negatively correlated to liquidity. Sukuk investors’ preference to lock in buy-and-hold position in amortising the return and also their keenness to match their long term liability with sukuk are two imminent behaviours of sukuk investors concluded form the findings. Such findings are believed to provide better apprehension on sukuk investors’ behaviour and enable faster development in Malaysia Islamic financial system.
format	Thesis
qualification_level	Master's degree
author	Wan Suhaimi, Wan Nurhanan
author_facet	Wan Suhaimi, Wan Nurhanan
author_sort	Wan Suhaimi, Wan Nurhanan
title	Determinants of sukuk’s liquidity level in Malaysia using latent liquidity measure
title_short	Determinants of sukuk’s liquidity level in Malaysia using latent liquidity measure
title_full	Determinants of sukuk’s liquidity level in Malaysia using latent liquidity measure
title_fullStr	Determinants of sukuk’s liquidity level in Malaysia using latent liquidity measure
title_full_unstemmed	Determinants of sukuk’s liquidity level in Malaysia using latent liquidity measure
title_sort	determinants of sukuk’s liquidity level in malaysia using latent liquidity measure
granting_institution	Universiti Putra Malaysia
publishDate	2014
url	http://psasir.upm.edu.my/id/eprint/70160/1/FEP%202014%2019%20-%20IR.pdf
_version_	1747812772682399744

Determinants of sukuk’s liquidity level in Malaysia using latent liquidity measure

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