UNDERSTANDING THE EFFICIENCY OF SUKUK INDICES: THE ROLE OF THE GARCH-IN-MEAN MODEL IN DIFFERENT SUKUK RATINGS

Abstract

Significant developments have occurred in the sukuk market in the Islamic capital markets. The deterioration of the economic situation during the 2008 global financial crisis affected the value of sukuk investment, particularly in the world's largest sukuk market, Malaysia. Following the 2008 crisis, the global decline in the issuance of sukuk has resulted in a 33 per cent decline in the total number of sukuk, creating a complex situation for sukuk investors, as sukuk are classified as risks and ultimately increase the number of sukuk that fail. The importance of the sukuk as the key capital market instrument of the Islamic Capital Market can be ascertained from this IIFM Sukuk report, where the global outstanding Sukuk in 2022 were USD 0.794 trillion or 24.43% of the total net worth of the industry. High volatility affects long-term effectiveness. The higher the volatility during the crisis (as a risk estimate), the greater is the likelihood of Sukuk's default. This study examined the efficiency of the Ukrainian market using daily historical price data from 2006 to 2015 and extracted some of the UK indices of different ratings DJSUK3AT, DJSUK2AT, DJSUK1AT, and DJSUK3BT from the Bloomberg database (excluding Saturdays and Sundays). The research uses the GARCH-in-Mean (GARCH-M) model to identify the types of efficiency of the sukuk market. The highest quality and excellence ratings (AAAs) for DJSUK3AT and DJSUK2AT have been recognised as the best market indicators based on market efficiency analysis. Generally, the sukuk market is considered inefficient, which should raise concerns among investors and issuers. Therefore, the efficiency of the sukuk market research is essential, as it can serve as an indicator for determining the best situation for investing and issuing sukuk. The empirical contribution of the study highlights the importance of sukuk for encouraging investors to invest in sukuk, which ultimately leads to economic growth and investment.