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


  • 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




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


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


Ahmad, W., Rais, S., & Shaik, A. R. (2018). Modelling the directional spillovers from DJIM Index to conventional benchmarks: Different this time? The Quarterly Review of Economics and Finance, 67, 14-27. https://doi.org/10.1016/j.qref.2017.04.012

Ajmi, A. N., Hammoudeh, S., Nguyen, D. K., & Sarafrazi, S. (2014). How strong are the causal relationships between Islamic stock markets and conventional financial systems? Evidence from linear and nonlinear tests. Journal of International Financial Markets, Institutions & Money, 28, 213–227. https://doi.org/10.1016/j.intfin.2013.11.004

Akhtar, S., & Jahromi, M. (2017). Impact of the global financial crisis on Islamic and conventional stocks and bonds. Accounting and Finance, 57, 623-655. https://doi.org/10.1111/acfi.12136

Akhtaruzzaman, M., Boubaker, S. & Sensoy, A. (2020). Financial contagion during COVID-19 crisis. Finance Research Letter, 38, 101604. https://doi.org/10.1016/j.frl.2020.101604

Al Mamun, M., Uddin, G. S., Suleman, M. T., & Kang, S. H. (2020). Geopolitical risk, uncertainty and Bitcoin investment. Physica A: Statistical Mechanics and its Applications, 540, 123107. https://doi.org/10.1016/j.physa.2019.123107

Alam, N., Hassan, M. K., & Haque, M. A. (2013). Are Islamic bonds different from conventional bonds? International evidence from capital market tests. Borsa Istanbul Review, 13(3), 22-29. https://doi.org/10.1016/j.bir.2013.10.006

Al-Khazali, O., Lean, H. H. & Samet, A. (2014). Do Islamic stock indexes outperform conventional stock indexes? a stochastic dominance approach. Pacific-Basin Finance Journal, 28, 29–46. https://doi.org/10.1016/j.pacfin.2013.09.003

Aloui, C., Hammoudeh, S., & Hamida, H. B. (2015). Co-movement between sharia stocks and Sukuk in the GCC markets: A time-frequency analysis. Journal of International Financial Markets, Institutions & Money, 34, 69–79. https://doi.org/10.1016/j.intfin.2014.11.003

Al-Yahyaee, K. H., Mensi, W., Rehman, M. U., Vo, X. V., & Kang, S. H. (2020). Do Islamic stocks outperform conventional stock sectors during normal and crisis periods? Extreme co-movements and portfolio management analysis. Pacific-Basin Finance Journal, 62, 101385. https://doi.org/10.1016/j.pacfin.2020.101385

Antonakakis, N., Chatziantoniou, I., & Gabauer, D. (2019). Cryptocurrency market contagion: Market uncertainty, market complexity, and dynamic portfolios. Journal of International Financial Markets, Institutions and Money, 61, 37-51. https://doi.org/10.1016/j.intfin.2019.02.003

Arouri, M. E., ben Ameur, H., Jawadi, N., Jawadi, F., & Louhichi, W. (2013). Are Islamic finance innovations enough for investors to escape from a financial downturn? Further evidence from portfolio simulations. Applied Economics, 45(24), 3412–3420. https://doi.org/10.1080/00036846.2012.707776

Ashraf, D. (2013). Performance evaluation of Islamic mutual funds relative to conventional funds: Empirical evidence from Saudi Arabia. International Journal of Islamic and Middle Eastern and Management, 6(2), 105–121. https://doi.org/10.1108/17538391311329815

Ashraf, D., & Khawaja, M. (2016). Does the Shariah screening process matter? Evidence from Shariah compliant portfolios. Journal of Economic Behavior & Organization, 132, 77–92. https://doi.org/10.1016/j.jebo.2016.10.003

Ashraf, D., Rizwan, M. S., & Ahmad, G. (2022). Islamic equity investments and the COVID-19 pandemic. Pacific-Basin Finance Journal, 73, 101765. https://doi.org/10.1016/j.pacfin.2022.101765

Aysan, A. F., Demir, E., Gozgor, G., & Lau, C. K. M. (2018). Effects of the Geopolitical Risks on Bitcoin Returns and Volatility. Research in International Business and Finance, 47, 511-518. https://doi.org/10.1016/j.ribaf.2018.09.011

Azmat, S., Skully, M., & Brown, K. (2014). Issuer’s Choice of Islamic Bond Type. Pacific-Basin Finance Journal, 28, 122-135. https://doi.org/10.1016/j.pacfin.2013.08.008

Baur, D. G., & Lucey, B. M. (2010). Is gold a hedge or a safe haven? An analysis of stocks, bonds and gold. Financial Review, 45(2), 217-229. https://doi.org/10.1111/j.1540-6288.2010.00244.x

Baur, D. G., & McDermott, T. K. (2010). Is gold a safe haven? International evidence. Journal of Banking and Finance, 34(8), 1886–1898. https://doi.org/10.1016/j.jbankfin.2009.12.008

Bhuiyan, R. A., Puspa, M., Saiti, B., & Ghani, G. M. (2020). Comparative analysis between global Sukuk and bond indices: value-at-risk approach. Journal of Islamic Accounting and Business Research. 11(6), 1245-1256. https://doi.org/10.1108/JIABR-02-2018-0019

Boo, Y. L., Ee, M. S., Li, B., Rashid, M. (2017). Islamic or conventional mutual funds: Who has the upper hand? Evidence from Malaysia. Pacific-Basin Finance Journal, 42, 183-192. https://doi.org/10.1016/j.pacfin.2016.01.004

Bouri, E., Shahzad, S. J. H., Roubaud, D., Kristoufek, L., & Lucey, B. (2020). Bitcoin, gold, and commodities as safe havens for stocks: New insight through wavelet analysis. The Quarterly Review of Economics and Finance, 77, 156-164. https://doi.org/10.1016/j.qref.2020.03.004

Brownlees, C. T., Engle, R. F., & Kelly, B. T. (2011). A practical guide to volatility forecasting through calm and storm. Available at SSRN: http://dx.doi.org/10.2139/ssrn.1502915

Cakir, S. & Raei F (2007). Sukuk vs. Eurobonds: Is there a difference in value-at-risk? International Monetary Fund Working Paper WP/07/237.

Cevik, E. I., & Bugan, M. F. (2018). Regime-dependent relation between Islamic and conventional financial markets. Borsa Istanbul Review, 18(2), 114-121. https://doi.org/10.1016/j.bir.2017.11.001

Cheema, M. A., Faff, R., & Szulczyk, K. R. (2022). The 2008 global financial crisis and COVID-19 pandemic: How safe are the safe haven assets?. International Review of Financial Analysis, 83, 102316. https://doi.org/10.1016/j.irfa.2022.102316

Conlon, T., & McGee, R. (2020). Safe haven or risky hazard? Bitcoin during the COVID-19 bear market. Finance Research Letters, 35, 101607. https://doi.org/10.1016/j.frl.2020.101607

Corbet, S., Larkin, C., & Lucey, B. (2020). The contagion effects of the COVID-19 pandemic: Evidence from Gold and Cryptocurrencies. Finance Research Letters, 35, 101554. https://doi.org/10.1016/j.frl.2020.101554

Dewandaru, G., Rizvi, S. A. R., Masih, R., Masih, M., & Alhabshi, S. O. (2014). Stock market co-movements: Islamic versus conventional equity indices with multi-timescales analysis. Economic Systems, 38, 553–571. https://doi.org/10.1016/j.ecosys.2014.05.003

Dickey, D. A., & Fuller, W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American statistical association, 74(366a), 427-431. https://doi.org/10.2307/2286348

El Mehdi, I. K., & Mghaieth, A. (2017). Volatility spillover and hedging strategies between Islamic and conventional stocks in the presence of asymmetry and long memory. Research in International Business and Finance, 39, 595–611. https://doi.org/10.1016/j.ribaf.2016.04.006

Engle, R. (2002). Dynamic conditional correlation: A simple class of multivariate generalized autoregressive conditional heteroskedasticity models. Journal of Business & Economic Statistics, 20(3), 339-350. https://doi.org/10.1198/073500102288618487

Feng, W., Wang, Y., & Zhang, Z. (2018). Can cryptocurrencies be a safe haven: a tail risk perspective analysis. Applied Economics, 50(44), 4745-4762. https://doi.org/10.1080/00036846.2018.1466993

Foglie, A. D., & Panetta, I. C. (2020). Islamic stock market versus conventional: Are Islamic investing a “Safe Haven” for investors? A systematic literature review. Pacific-Basin Finance Journal, 64, 101435. https://doi.org/10.1016/j.pacfin.2020.101435

Glosten, L.R., Jagannathan, R., Runkle, D.E., (1993). On the relation between the expected value and the volatility of the nominal excess return on stocks. Journal of Finance 48(5), 1779– 1801. https://doi.org/10.1111/j.1540-6261.1993.tb05128.x

Hasan, M. B., Hassan, M. K., Karim, Z. A., & Rashid, M. M. (2022c). Exploring the hedge and safe haven properties of cryptocurrency in policy uncertainty. Finance Research Letters, 46, 102272. https://doi.org/10.1016/j.frl.2021.102272

Hasan, M. B., Hassan, M. K., Rafia, H. T., & Rashid, M. M. (2022b). Searching Hedging Instruments Against Diverse Global Risks and Uncertainties. Available at SSRN: https://ssrn.com/abstract=4164794.

Hasan, M. B., Hassan, M. K., Rashid, M. M., & Alhenawi, Y. (2021a). Are safe haven assets really safe during the 2008 global financial crisis and COVID-19 pandemic? Global Finance Journal, 50, 100668. https://doi.org/10.1016/j.gfj.2021.100668

Hasan, M. B., Hassan, M. K., Rashid, M. M., Ali, M. S., & Hossain, M. N. (2021b). Calendar anomalies in the stock markets: conventional vs Islamic stock indices. Managerial Finance, 48(2), 258-276. https://doi.org/10.1108/MF-12-2020-0601

Hasan, M. B., Rashid, M. M., Shafiullah, M., & Sarker, T. (2022a). How resilient are Islamic financial markets during the COVID-19 pandemic? Pacific-Basin Finance Journal, 74, 101817. https://doi.org/10.1016/j.pacfin.2022.101817

Hassan, M. K., Hasan, M. B., & Rashid, M. M. (2021). Using precious metals to hedge cryptocurrency policy and price uncertainty. Economics Letters, 206, 109977. https://doi.org/10.1016/j.econlet.2021.109977

Hassan, M. K., Paltrinieri, A., Dreassi, A., Miani, S., & Sclip, A. (2018). The determinants of co-movement dynamics between Sukuk and conventional bonds. The Quarterly Review of Economics and Finance, 68, 73-84. https://doi.org/10.1016/j.qref.2017.09.003

Ho, C. S. F., Abd Rahman, N. A., Yusuf, N. H. M., & Zamzamin, Z. (2014). Performance of global Islamic versus conventional share indices: International evidence. Pacific-Basin Finance Journal, 28, 110-121. https://doi.org/10.1016/j.pacfin.2013.09.002

Hossain, M. S., Uddin, M. H., & Kabir, S. H. (2021). Sukuk and bond puzzle: an analysis with characteristics matched portfolios. Emerging Markets Finance and Trade, 57(13), 3792-3817. https://doi.org/10.1080/1540496X.2019.1706478

Kroner, K. F., & Ng, V. K. (1998). Modeling asymmetric comovements of asset returns. The Review of Financial Studies, 11(4), 817-844. 10.1093/rfs/11.4.817

Kroner, K. F., & Sultan, J. (1993). Time-varying distributions and dynamic hedging with foreign currency futures. Journal of Financial and Quantitative Analysis, 28(4), 535-551. https://doi.org/10.2307/2331164

Laurent, S., Rombouts, J. V., & Violante, F. (2012). On the forecasting accuracy of multivariate GARCH models. Journal of Applied Econometrics, 27(6), 934-955. https://doi.org/10.1002/jae.1248

Maghyereh, A. I., & Awartani, B. (2016). Dynamic transmissions between Sukuk and bond markets. Research in International Business and Finance, 38, 246-261. https://doi.org/10.1016/j.ribaf.2016.04.016

Masih, M., Kamil, N. K. & Bacha, O. I. (2018). Issues in Islamic equities: A literature survey. Emerging Markets Finance and Trade, 54(1), 1–26. https://doi.org/10.1080/1540496X.2016.1234370

Mezghani, T., & Boujelbène, M. (2018). The contagion effect between the oil market, and the Islamic and conventional stock markets of the GCC country: Behavioral explanation. International Journal of Islamic and Middle Eastern Finance and Management, 11(2), 157-181. https://doi.org/10.1108/IMEFM-08-2017-0227

Mirza, N., Rizvi, S. K. A., Saba, I., Naqvi, B., & Yarovaya, L. (2022). The resilience of Islamic equity funds during COVID-19: Evidence from risk adjusted performance, investment styles and volatility timing. International Review of Economics & Finance, 77, 276-295. https://doi.org/10.1016/j.iref.2021.09.019

Naifar, N., & Hammoudeh, S. (2016). Do global financial distress and uncertainties impact GCC and global sukuk return dynamics?. Pacific-Basin Finance Journal, 39, 57-69. https://doi.org/10.1016/j.pacfin.2016.05.016

Paltrinieri, A., Hassan, M. K., Bahoo, S., & Khan, A. (2019). A bibliometric review of Sukuk literature. International Review of Economics & Finance (Forthcoming). https://doi.org/10.1016/j.iref.2019.04.004

Phillips, P. C. B., & Perron, P. (1988). Testing for a unit root in time series regression. Biometrika., 75(2), 335–346. https://doi.org/10.1093/biomet/75.2.335

Pirgaip, B., Arslan-Ayaydin, Ö., & Karan, M. B. (2020). Does Sukuk provide diversification benefits to conventional bond investors? Evidence from Turkey. Global Finance Journal, 50, 100533. https://doi.org/10.1016/j.gfj.2020.100533

Ramelli, S., & Wagner, A. F. (2020). Feverish Stock Price Reactions to COVID-19. Review of Corporate Finance Studies, 9(3), 622–655. https://doi.org/10.1093/rcfs/cfaa012

Rejeb, A. B. (2017). On the volatility spillover between Islamic and conventional stock markets: A quantile regression analysis. Research in International Business and Finance, 42, 794-815. https://doi.org/10.1016/j.ribaf.2017.07.017

Shahzad, S. J. H., Aloui, C., Jammazi, R., & Shahbaz, M. (2019). Are Islamic bonds a good safe haven for stocks? Implications for portfolio management in a time-varying regime-switching copula framework. Applied Economics, 51(3), 219-238. https://doi.org/10.1080/00036846.2018.1494376

Sharif, A., Aloui, C., & Yarovaya, L. (2020). COVID-19 pandemic, oil prices, stock market, geopolitical risk and policy uncertainty nexus in the US economy: Fresh evidence from the wavelet-based approach. International Review of Financial Analysis, 70, 101496. https://doi.org/10.1016/j.irfa.2020.101496

Sherif, M. (2020). The impact of Coronavirus (COVID-19) outbreak on faith-based investments: An original analysis. Journal of Behavioral and Experimental Finance, 28, 100403. https://doi.org/10.1016/j.jbef.2020.100403

Yarovaya, L., Elsayed, A. H., & Hammoudeh, S. (2021). Determinants of spillovers between Islamic and conventional financial markets: exploring the safe haven assets during the COVID-19 pandemic. Finance Research Letters, 43, 101979. https://doi.org/10.1016/j.frl.2021.101979

Yousaf, I., & Yarovaya, L. (2021). Spillovers between the Islamic gold-backed cryptocurrencies and equity markets during the COVID-19: A sectorial analysis. Pacific-Basin Finance Journal, 101705. https://doi.org/10.1016/j.pacfin.2021.101705




How to Cite

Amin, M. R., Hakim, M. A., Rashid, M. M., & Hasan, S. M. (2022). Quantifying the connectedness and portfolio implications between Islamic and conventional bonds: Evidence from global and GCC regions. Journal of Economic Analysis, 1(2), 1–16. https://doi.org/10.58567/jea01020001