Spillover effect

Financial system

Philosophy

Islam

Microeconomics

Equity capital markets

Economics

Market liquidity

Business

Private equity

Islamic finance

Political science

Monetary economics

Sukuk

Profitability index

Debt

Financial economics

Finance

Equity (law)

Theology

Pacific-Basin Finance Journal

In this paper, we quantify the directional spillovers from sukuk (Islamic bond) markets to Shariah-compliant equity markets and vice versa. The directions and magnitudes of spillovers are quite disperse among different countries and Islamic equity and sukuk markets. Novel to the literature, we find that profitability and liquidity positions of the Islamic firms and market size are highly influential on the magnitude of spillovers between two markets. In particular firms from deeper markets (higher market capitilization) with better liquidity position (better debt to asset ratios) makes less spillovers from sukuk and equity markets interestingly, deeper markets and higher profitability ratios of the firms makes greater spillovers from equity to sukuks markets. We also create a matched sample for 38 firms that issued both sukuks and Islamic equities. Implementing similar spillover models to the matched sample, we indicate that firm-level profitability and liquidity positions of firms are essential in modelling the magnitude of the spillovers between sukuks and equities.

Spillovers between Sukuks and Shariah-compliant equity markets