Assessing the Impact of Financial Uncertainties on Sukuk Market Development: Insights from the Top Sukuk Issuing Nations

Abstract

In recent years, following the rapid development of the Sukuk market, a plethora of theoretical and empirical academic studies have been conducted to investigate different aspects of this financial instrument. However, there remains a gap in understanding the influence of different risk factors on the development of the Sukuk market. To extend the literature and provide a more comprehensive understanding, we investigate this topic in the top Sukuk issuing countries utilizing advanced econometric methods. The dataset covering the period of 2013Q2-2020Q4 was analyzed using panel Methods of Moments Quantile Regression (MMQR), and the Fully Modified Ordinary Least Squares (OLS) method was employed for robustness. The findings revealed that although international liquidity stability positively affects Sukuk market development, the financial uncertainty index and inflation rate hinder it across all quantiles. On the other hand, economic growth has a significant effect on Sukuk development only in the lower quantiles. Furthermore, financial risks have a greater impact on Sukuk market development in higher quantiles compared to lower quantiles. Our findings have important policy implications for regulatory authorities of these countries, firms, market participants, and investors.