Sukuk and Bond Performance in Malaysia

Abstract

Sukuk and bonds are two kinds of financial instruments that share the Malaysian capital market. Sukuk are Sharia-compliant financial instruments referred as “Islamic bonds” in the Malaysian market (Note 1). The aim of this paper is to diagnose the performance of Sukuk portfolios compared with bond portfolios. For this purpose, we use the series of indices TR BPAM ALL BOND INDEX. Those indices cover the whole Sukuk and bond Malaysian market. We collect historical data of those indices from the website of Bond Pricing Agency of Malaysia (BPAM) for a period of six years from 2007 to 2012. We first study the significance of the difference in the portfolios’ mean return. Secondly, we address the portfolios’ return correlation. Comparing indices shows that Sukuk index outperformed the bond index and market index. Furthermore, the results confirm a significant and positive correlation between returns of Sukuk and bond portfolios.