Quantifying the connectedness and portfolio implications between Islamic and conventional bonds: Evidence from global and GCC regions

Md. Ruhul Amin; Md. Abdul Hakim; Md. Mamunur Rashid; Shaikh Masrick Hasan

doi:10.58567/jea01020001

Authors

Md. Ruhul Amin Department of Finance and Banking, Islamic University, Kushtia, Bangladesh
Md. Abdul Hakim Department of Business Administration, Notre Dame University, Dhaka, Bangladesh
Md. Mamunur Rashid Department of Finance and Banking, Islamic University, Kushtia, Bangladesh
Shaikh Masrick Hasan Department of Finance, Jagannath University, Dhaka, Bangladesh

DOI:

https://doi.org/10.58567/jea01020001

Keywords:

Conventional bonds, Sukuk, Time-varying analysis, Portfolio implications

Abstract

We explore the connectedness and portfolio implications between Islamic and conventional bonds of global and GCC regions. We also compare which bonds are performing better during our sample period. Unlike previous studies, we focus on Islamic bond markets compared to their conventional counterparts and highlight the GCC bonds (Islamic and conventional) in respect of global bonds. We apply DCC-GJR-GARCH (1,1) method, Sharp ratio and portfolio implications strategy over the period from 01 September 2013 to 23 February 2022. Our time-varying results suggest that the relationship among all the variables varies over time, but most of them are positive, suggesting that there is a less diversification opportunity between Islamic and conventional bonds. Hedging and diversification benefits are found only in the limited period among these variables, especially between GCC bond and global bond, and global Sukuk and GCC Sukuk. The findings of risk-adjusted returns reveal that Islamic bonds outperform compared to conventional counterparts. Moreover, mixed results are found in the case of hedging cost, and majority of fund, based on the optimal weights, should be invested in Islamic bonds. Our study endows investors and regulators in the global, and GCC markets with new insights on how to shield their investments and the financial system from financial crisis through a hedging strategy with Islamic finance.

Author Biographies

Md. Ruhul Amin, Department of Finance and Banking, Islamic University, Kushtia, Bangladesh

Professor of Finance and Banking

Islamic University, Kushtia-7003, Bangladesh

Md. Abdul Hakim, Department of Business Administration, Notre Dame University, Dhaka, Bangladesh

Associate Professor

Department of Business Administration

Notre Dame University, Bangladesh

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