Does a held-to-maturity strategy impede effective portfolio diversification for Islamic bond (sukuk) portfolios? A multi-scale continuous wavelet correlation analysis
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There is a critical gap in literature in studying the portfolio diversification opportunities available to sukuk investors and evaluating these in the light of held-to-maturity strategies usually adopted by these investors. This paper has made an initial attempt to study the portfolio diversification strategies for sukuk portfolios across heterogeneous investment horizons. Our findings critically indicate that returns between local currency sukuk in different markets generally have low levels of correlations across different investor holding periods, thus enabling both short and long-run portfolio diversification benefits. However, in contrast, international currency sukuk issued in different markets exhibit high levels of correlations in the longer-term investor holding periods. Also in the domestic market context, returns on different classes of domestic sukuk are found to exhibit strong correlations in the longer-holding periods. Our findings critically highlight the feasibility of held-to-maturity sukuk investment strategies from a portfolio diversification perspective.
Continuous wavelet analysis , Islamic bonds , Portfolio diversification , Sukuk
Najeeb, S. F., Bacha, O. I., & Mohammed Masih, A. M. (2017). Does a held-to-maturity strategy impede effective portfolio diversification for Islamic bond (sukuk) portfolios? A multi-scale continuous wavelet correlation analysis. Emerging Markets Finance & Trade, 53(10), 2377–2393. https://doi.org/10.1080/1540496X.2016.1205977
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