Portfolio Risk Management of Islamic Debt Capital Markets (Sukuk)
1 Assistant Professor, Institute of Management Sciences, Peshawar
2 MS student, Institute of Management Sciences, Peshawar
This study investigates the portfolio risk management of Sukuk and Euro bonds. The study is conducted in five countries including Malaysia, Bahrain, Pakistan, Bermuda and UAE. For each country two portfolios are made, one comprising of both Sukuk and Euro bonds whereas the other portfolio contains only Euro bonds. The evaluation of financial performance is done on the basis of VaR, a risk measurement tool. For this purpose, daily returns data for the bonds Sukuk and Euro, is collected from DataStream. VaR is calculated for each portfolio through Delta normal approach. It is found that inclusion of Sukuk in a portfolio significantly affects the risk level of the portfolio. In case of all the countries included in a sample that is Malaysia, Bahrain, Pakistan, Bermuda and UAE, the VaR value significantly decreased by including Sukuk bond in the portfolio along with the Euro bond. With the inclusion of Sukuk bond in a portfolio along with the Euro bonds, the holdings are diversified (Segaf, 2012; Hassan, 2012; Fenech & Watson, 2009; Godlewski, Ariss & Weill, 2011; Cakir & Raei, 2007).
Keywords: Islamic finance, Sukuk, conventional (Euro) bonds, Value at risk, portfolio management.