Open Access Journal Article

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

by Md. Ruhul Amin a orcid ,  Md. Abdul Hakim b orcid ,  Md. Mamunur Rashid c,* orcid  and  Shaikh Masrick Hasan c orcid
a
Department of Finance and Banking, Islamic University, Kushtia, Bangladesh
b
Department of Business Administration, Notre Dame University, Dhaka, Bangladesh
c
Department of Finance, Jagannath University, Dhaka, Bangladesh
*
Author to whom correspondence should be addressed.
JEA  2022 1(2):9; https://doi.org/10.58567/jea01020001
Received: 25 November 2022 / Accepted: 8 December 2022 / Published Online: 15 December 2022
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Abstract

We explore the connectedness and portfolio implications between Islamic and conventional bonds in global and GCC regions. We also compare which bonds performed 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 the DCC-GJR-GARCH (1,1) method, the Sharpe ratio, and the portfolio implications strategy over the period from September 1, 2013, to February 23, 2022. Our time-varying results suggest that the relationship among all variables varies over time, but most of them are positive, suggesting that there are fewer diversification opportunities between Islamic and conventional bonds. Hedging and diversification benefits are found only in the limited period among these variables, especially between GCC bonds and global bonds, and global Sukuk and GCC Sukuk. The findings of risk-adjusted returns reveal that Islamic bonds outperform their conventional counterparts. Moreover, mixed results are found in the case of hedging costs, and the majority of the fund, based on 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 crises through a hedging strategy with Islamic finance.

Keywords: Conventional bonds; Sukuk; Time-varying analysis; Portfolio implications;
Copyright: © 2022 by Amin, Hakim, Rashid and Hasan. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY) (Creative Commons Attribution 4.0 International License). The use, distribution or reproduction in other forums is permitted, provided the original author(s) or licensor are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.
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ACS Style
Amin, M. R.; Hakim, M. A.; Rashid, M. M.; Hasan, S. M. Quantifying the connectedness and portfolio implications between Islamic and conventional bonds: Evidence from global and GCC regions. Journal of Economic Analysis, 2022, 1, 9. https://doi.org/10.58567/jea01020001
AMA Style
Amin M R, Hakim M A, Rashid M M, Hasan S M. Quantifying the connectedness and portfolio implications between Islamic and conventional bonds: Evidence from global and GCC regions. Journal of Economic Analysis; 2022, 1(2):9. https://doi.org/10.58567/jea01020001
Chicago/Turabian Style
Amin, Md. R.; Hakim, Md. A.; Rashid, Md. M.; Hasan, Shaikh M. 2022. "Quantifying the connectedness and portfolio implications between Islamic and conventional bonds: Evidence from global and GCC regions" Journal of Economic Analysis 1, no.2:9. https://doi.org/10.58567/jea01020001
APA style
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), 9. https://doi.org/10.58567/jea01020001

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