Issue logo

Jurnal Ekonomi Malaysia

59 (2) 2025 –

Flight to Quality from Islamic Stocks to Sukuk: Are Islamic Investors Worse off During a Crisis?

Institute of Research in Finance and Economics (IRFAN)
54000 Kuala Lumpur, MALAYSIA.

ahmadalizham@gmail.com

University College MAIWP International (UCMI)
Jalan Tangsi, Tasik Perdana
50480 Kuala Lumpur, MALAYSIA.

rosylin@uum.edu.my

Institute of Sustainable, Growth and Urban Development
Universiti Utara Malaysia
Kuala Lumpur Campus
50300 Kuala Lumpur, MALAYSIA.

arizal@uum.edu.my

Abstract

This study examines flight-to-quality behaviour from Shariah-compliant stocks (Islamic stocks) to sukuk during a crisis and determines whether Islamic investors, who are restricted to Shariah-compliant assets, are at a disadvantage compared with conventional investors.By conducting dynamic conditional correlation (DCC) analysis, this research investigates the correlations between global sukuk, bonds, stocks, Islamic stock indices and gold prices from January 2020 to May 2021. The data are sourced from Bloomberg and the Standard and Poor website. This study focuses on the COVID-19 pandemic period and captures its significant impact on global financial markets and investor behaviour. The findings reveal that whilst flight to quality from Islamic stocks to sukuk occurred initially, the correlations between the assets became positive as the market downturn continued, which indicates limited long-term benefits. Sukuk demonstrated lower volatility and faster mean reversion compared with conventional and Islamic stocks, which highlights their risk management and portfolio diversification potential. Despite this, Islamic investors were not necessarily worse off during the crisis. The initial flight to quality suggests that Islamic investors can find refuge in sukuk, which can stabilise their portfolio. However, as the downturn persisted and correlations increased, the benefits diminished, which indicates that though sukuk can manage certain risks, they cannot completely shield Islamic investors from market downturns. This study contributes to the limited literature on Islamic      capital market instruments during a crisis and demonstrates the utility of DCC MGARCH analysis in capturing dynamic relationships between asset classes. This research underscores the strategic importance of sukuk in managing risks and enhancing portfolio diversification during market downturns. The findings can inform investment strategies for resilience against financial crises and highlight the need to understand investor behaviour and sentiment in Islamic finance (i.e. behavioural finance).

Keywords

islamic stock; portfolio diversification; Risk management; Sukuk
http://dx.doi.org/10.17576/JEM-2025-5902-11
No. of views: 141
View Full Text

Similar Articles

  1. The Estimation of Risk Management Efficiency and its Determinants

Bibliography

Export Bibliography

Izadin, Ahmad Al Izham and Mohd Yusof, Rosylin and Mazlan, Ahmad Rizal (2025). Flight to Quality from Islamic Stocks to Sukuk: Are Islamic Investors Worse off During a Crisis?. Jurnal Ekonomi Malaysia, 59(2), –. http://dx.doi.org/10.17576/JEM-2025-5902-11

@article{izadin2025flight,
  title={Flight to Quality from Islamic Stocks to Sukuk: Are Islamic Investors Worse off During a Crisis?},
  author={Izadin, Ahmad Al Izham and Mohd Yusof, Rosylin and Mazlan, Ahmad RizalIzadin, Ahmad Al Izham and Mohd Yusof, Rosylin and Mazlan, Ahmad Rizal},
  journal={Jurnal Ekonomi Malaysia},
  volume={59},
  number={2},
  pages={—},
 

year={2025},
}

Receive updates when new articles are published.