Modeling returns of sukuk and related indices with system GMM: evidence from the MENA region

Abstract

Purpose The paper aims to resolve the ongoing issue of asset pricing in indexed based investments, primarily in Sukuks. It is to be done by modeling the returns of S&P MENA (Middle East and North Africa) Sukuk index (SPS), S&P MENA bonds indices (SPM) and Dow Jones MENA (DJM) equity index using system equations and to find out cointegration among them. Design/methodology/approach In this study, daily data of stated regional market indices, from the month July 2013 to June 2017, are analyzed using the cointegration model and Generalized Method of Moments (GMM) estimation. Findings Findings revealed through cointegration test that indices are found to be not integrated in the long run; however, in short run, DJM is having one way relation with other two indices, and SPM and SPS are having unidirectional relation. The results of the GMM model show that SPS is significant in influencing SPM and vice-versa, and rest other variables are insignificant in influencing each other systems equations. Originality/value There is ample work available on various Islamic indices, but there is no study found on the MENA (Middle East and North Africa) Equity, MENA Bond and MENA Sukuk indices together.