Graduation Year

2025

Date of Submission

12-2024

Document Type

Campus Only Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics

Reader 1

Florian Madison

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Terms of Use for work posted in Scholarship@Claremont.

Rights Information

2024 Yahya G Yousef

Abstract

This study explores the distinctions between sukuk and conventional bonds using panel-data fixed-effects regression models. The analysis employs over 2,000 observations of Malaysian sovereign sukuk (MGII) and Malaysian Government Securities (MGS) from 2019 to 2024, incorporating variables such as bond tenure, market volatility, central bank interest rates, GDP, credit ratings, and liquidity. The findings reveal both similarities and divergences in yield determinants. While sukuk and conventional bond yields exhibit comparable sensitivity to tenure, interest rates, GDP, and credit ratings, significant differences emerge in their responses to market volatility and liquidity. Sukuk yields exhibit a negative correlation with stock market volatility, suggesting resilience driven by persistent demand from Shariah-compliant investors. In contrast, conventional bond yields increase under similar conditions, reflecting broader market risk dynamics. Furthermore, increased liquidity consistently reduces sukuk yield spreads, whereas the relationship for conventional bonds appears less systematic, underscoring distinct market mechanisms. These results substantiate the argument that sukuk are not merely Shariah-compliant adaptations of conventional bonds but represent distinct financial instruments with unique behavioral characteristics. The study highlights sukuk’s potential for portfolio diversification and their innovative role within the Islamic finance framework. By addressing gaps in the literature, this research contributes to the understanding of sukuk as differentiated assets in the global financial system. Future research may extend these findings by exploring longer time horizons and the impact of secondary market dynamics on sukuk pricing.

This thesis is restricted to the Claremont Colleges current faculty, students, and staff.

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