| Summary: | Sukuk investment is relatively new kind of investment which equivalent with bonds.
The rapid development of sukuk especially in Moslem majority countries have not
accommodated by liquid market, therefore, the market risk profiling of sukuk
investment also hard to be determined. Moreover, the research on this subject is
relatively scarce compared to other kind of investment instruments. On the other hand
most of the available research only covers qualitative study on sukuk risk profile.
The previous studies of sukuk show many argument related to its various risk
profiles. Many of the qualitative studies focus on the fundamental study of sukuk to
interpret the risk profile of sukuk. All of them came into similar conclusions that
sukuk has higher risk compared to conventional bonds due to its fundamental
structure. As the market to be efficient the market risk profile also should reflect
similar conclusion. On the other hand a quantitative research conducted by Cakir and
Raei (2007) concluded that sukuk has effect on decreasing the portofolio risk consist
of conventional bonds. This open for possibilities that sukuk is less risky than bonds
or it might just have the same level of market risk but with low correlation with bonds
risk. The study by Nurjanah (2010) concluded that there is no significant difference
between sukuk and conventional bonds market risks. However, for some reasons
elaborated further in the report, the author needs to verify the results from the
research of Nurjanah (2010).
Therefore, this research aims to study the market risk profile of sukuk compared to conventional bonds. The sample is limited to corporate sukuk and bonds in Indonesia which have pair in terms of maturity and corporate ratings. This was due to eliminate the effect of maturity and credit rating in the risk comparisons among them. In order to measure the market risk the author chose Value at Risk measurement which has been widely used by many financial institutions to measure their risk level. The measurement itself utilizes two kinds of methods, the conventional and Monte Carlo simulation to verify the results. Finally to compare the difference the author use paired t-test method to statistically measure the significance of market risk difference between sukuk and conventional bonds.
The result shows that sukuk has relatively significant lower market risk exposure compared to conventional bonds. The result is consistent in both conventional measurement and Monte Carlo simulation with α 5 percent. The results show that the mean difference between sukuk and bond market risk is inversely significant.
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