Do Debt Markets Price Sukūk and Conventional Bonds Differently?

A new type of debt securities called s{dot below}ukūk certificates have grown to us$ 840 billion in 11 financial markets as of 2011. these islamic debt instruments share some features similar to conventional bonds,so market operators treat both as bonds. whether it is appropriate to treat s{dot below}ukūk certificates as conventional bonds is empirically tested in this paper. if the yields of s{dot below}ukūk are the same as those of conventional bonds,granger causality tests could confirm their equivalence. practically the tests show otherwise. also,the yields of s{dot below}ukūk instruments are significantly higher than yields of conventional bonds even after controlling issuers,rating quality and tenure in matched samples tests. finally,s{dot below}ukūk issuance affects the issuing firm's beta risk significantly,which is consistent with capital structure theory. these new findings on the 10-year old islamic debt market have regulatory and market making policy implications as to whether s{dot below}ukūk instruments should be classed as a new class of financial instruments,and not as bonds. future research and market practices have to reinvestigate a number of issues anew because s{dot below}ukūk market is for a different class of debt.