Comparative Risk Analysis of Sukuk and Bond : Insight From Arch and Garch Model

The purpose of this study is to compare the trend and volatility behaviour in Sukuk and conventional bonds of the Pakistan market. This study takes data from Wapda Sukuk and Pakistan 5 Investment Bonds (PIB) both of ten (10) years of maturity were incorporated as a sample. Daily price data were collected from Bloomberg software and the Security Exchange of Pakistan (SECP) websites. This study employed the ARCH and GARCH models to analyze the risk behaviour of the Sukuk and PIBs in Pakistan. The findings of the study showed that Sukuks are less volatile and stable instruments as compared to investment bonds in Pakistan. These findings conclude that the Sukuk market provides optimal investment diversification opportunities for fixed-income investors. This research will be beneficial to the local and global investors to choose between bonds and Sukuk on basis of risk volatility and returns. This study is unique in that it compares the volatility of two securities that are operationally distinct