The Empirical Study on Market Liquidity and Determinants of Sukuk in Malaysia
Keywords:Sukuk, Market liquidity, Malaysian Islamic capital market, Maturity, Coupon rate, Credit rating
The purpose of this study is to examine the relationship between market liquidity and the determinants of Sukuk in Malaysia’s perspective. This study is also to determine whether the Sukuk market is also reacting as similar to the bond market regarding market liquidity. A sample of 933 issued Sukuk in Malaysia is collected from secondary data of Bond Pricing of Agency Malaysia (BPAM) and Bond Info hub of Bank Negara Malaysia from the period of 2005 to 2015. The sample of issued Sukuk is based on Malaysian Ringgit denominated currency and these Sukuk are actively traded in the secondary market of Malaysia. The sample comprises five (5) sectors inclusive government, quasi-government, finance; Asset-Backed Securities (ABS) and corporates. Market Microstructure Theory is using on the impact of numerous market frictions in the market structure and individual behaviour during the price determination process in this study. The empirical results of this study show that age and maturity have a positive relationship with Sukuk market liquidity and they are significantly correlated. The findings of this study could assist investors in the making decision by choosing the right type of Sukuk structure and by utilising the suitable Sukuk determinants at the right time. From the analysis, the researcher concludes that investors prefer to hold their securities until meeting its maturity rather than traded it in the secondary market. Further research should be done by incorporating other liquidity factors such as the liquidity risk, yield spread and price in order to have more input to the study on liquidity since the Sukuk market is increasing in demand and becomes more sophisticated as the financial market is moving towards digitalisation and electrification.
Alexander, G. J., Edwards, A. K., & Ferri, M. G. (2000). The Determinants of Trading Volume of High-Yield Corporate Bonds, Journal of Financial Markets, 3(2) 177-204.
Amihud, Y. (2002). Illiquidity and stock returns: cross-section and time-series effects, Journal of Financial Markets, 5(1), 31-56.
Bank Negara Malaysia. (1999). The Central Bank and the Financial System in Malaysia – A Decade of Change. Kuala Lumpur: Bank Negara Malaysia.
Brandao-Marques, L., Gonzalez-Hermosillo, B., Bouveret, A., Han, F., Jones, D., Kiff, J., Lambert, F., Monroe, W., Khadarina, O., Valderrama, L., & Yan, K., (2015). International Monetary Fund. Retrieved from http://www.imf.org/External/Pubs/FT/GFSR/2015/02/pdf/cr_v2.pdf
Bouchaddekh, T. & Bouri, A. (2013). Measures, Determinants and Commonality in Liquidity: Empirical Tests on Tunisian Stock Market. International Journal of Science and Research, 4(1), 347-355.
Chordia, T., Richard W., Roll, R. & Subrahmanyam, A. (2000). Commonality in liquidity, Journal of Financial Economics, 56(1), 3-28.
Chordia, T., Roll, R., & Subrahmanyam, A.(2001). Market liquidity and trading activity. Journal of Finance, 56(2), 501–530.
Datar, V.T., Naik, N., & Radcliffe, R.(1998). Liquidity and stock return: An alternative test. Journal of Financial Markets, 1(2), 203-219.
Demsetz, H. (1968). The Cost of Transacting. The Quarterly Journal of Economics, 82(1), 33-53.
Duffie, D., Garleanu, N., & Pedersen, L.H. (2005). Over the Counter Markets. Econometrica, 73(6), 1815- 1847. doi: http://dx.doi.org/10.1111/j.1468-0262.2005.00639.x
Duffie, D. (2012). Market Making under the Proposed Volcker Rule. Working Paper 106, Rock Center for Corporate Governance at Stanford University, Palo Alto, California.
Fridson, M. S. & Garman, M. C. (1998). Determinants of Spreads on New High-Yield Bonds, Financial Analysts Journal, 54(2), 28-39.
Friewald, N., Jankowitsch, R., & Subrahmanyam M.G. (2012). Illiquidity or credit deterioration: A study on liquidity in the US corporate bond market during financial crises. Journal of Financial Economics. 105, 18-36.
Jack, D. (2016). Why Liquidity Matters in the Corporate Bond Market. Retrieved from https://www.investopedia.com/articles/investing/012216/why-liquidity-matters-in-the-corporate-bonds-market.asp
Jovanovic, B., & Rousseau, P.L. (2001). Liquidity Effect in the Bond Market. National Bureau of Economic Research Working Paper No. 8957, (Nov), JEL No. E44, E5.
Kyle, A. S. (1985). Continuous auctions and insider trading. Journal of the Econometric Society, 1315–1335.
Leung, M. (2014). Sukuk Liquidity Trends. Sukuk 201 Global.
Mahanti, S., Nashikkar, A., Subrahmanyam, M., Chacko, G., & Mallik, G. (2008). Latent liquidity:A new measure of liquidity, with an Application to Corporate Bonds, Journal of Financial Economics, 88(2) 272-298.
Mod Asri, N., Abdul Karim, Z., Shahimi, S. & Al-Hadi, A. A. (2004). The effect of Islamic private debt securities rating changes on the firm’s common stock returns. The Journal of Muamalat and Islamic Finance Research, 1(1), 25-38.
Ross, S. A., Westerfield, R. W., & Jaffe, J. (2010). Corporate Finance. (9th ed.). New York: McGraw Hill.
Rusmawati, S., Wan Nurhanan, W, S., & Asmaddy, H. (2013). Determinants of Islamic Bond (Sukuk): Evidence in Malaysia.
Sarig, O., & Warga, A. (1989). Bond price data and bond market liquidity, Journal of Financial and Quantitative Analysis, 24(3) 367-378.
Sarr, A. & Lybek, T. (2002). Measuring Liquidity in Financial Markets. IMF Working Paper. Retrieved from https://www.imf.org/external/pubs/ft/wp/2002/wp02232.pdf.
Schultz, P. (2001). Corporate bond trading costs: a peek behind the curtain. Journal of Finance, 56(2), 677 - 698.
Vayanos, D., & Wang, J. (2012). Market Liquidity: Theory and Evidence. NBER Working Paper 1825, National Bureau of Economic Research, Cambridge, Massachusetts.
Zaidi, J. A. (2007). Overcoming barriers to liquidity: Commoditization, Sukuk, promoting issuance and a secondary market. Islamic Finance and Investment World Europe.
How to Cite
Copyright of all articles published in the Indian Pacific Journal of Accounting and Finance (IPJAF) belongs to their respective authors. Site users are permitted to download and print the articles for personal use. Further reproduction and/or distribution is not permitted, except for brief excerpts or quotations intended for inclusion in some other original works. In this case, proper attribution must be made to the author/copyright holder, and the place of publication must be acknowledged. Altering, editing or otherwise modifying the content of information obtained from the Indian Pacific Journal of Accounting and Finance (IPJAF) is a breach of copyright.
While you retain the copyright of your original material, by publishing in the Indian Pacific Journal of Accounting and Finance (IPJAF) , you will have agreed to the following contractual terms:
- The article is the original work of the stated author(s).
- The work has not been published previously.
- If the Article contains copyright material owned by others, written permission has been obtained from the copyright owner(s) to republish such material in any print or electronic medium and that you have included appropriate acknowledgement of such rights in the Article.
- The author agrees to grant a non-exclusive license to the Indian Pacific Journal of Accounting and Finance (IPJAF) to communicate the work to the public.
- The Indian Pacific Journal of Accounting and Finance (IPJAF) may use the article for publicity purposes.
- The Indian Pacific Journal of Accounting and Finance (IPJAF) may publish the article on third-party sites.
- Any subsequent publication of the article by the authors will carry the acknowledgement: First published in the Indian Pacific Journal of Accounting and Finance (IPJAF) [http://ipjaf.omjpalpha.com]
The Indian Pacific Journal of Accounting and Finance (IPJAF) has taken all reasonable measures to ensure that material contained in this website is the original work of the author(s). However, the Journal gives no warranty and accepts no responsibility for the accuracy or the completeness of the material; no reliance should be made by any user on the material. The user should check with the authors for confirmation.
Articles published in the Indian Pacific Journal of Accounting and Finance (IPJAF) do not represent the views held by the editors and members of the editorial board. Authors are responsible for all aspects of their articles except the editorial screen design.