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Investigating FTSE KLCI Using CAAR Estimations Following Sukuk Announcement in Malaysia: Based on Sukuk Ratings

Received: 06 September 2016    Accepted: 29 September 2016    Published: 31 October 2016
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Abstract

The intention of the article is to explore whether different rating announcements on sukuk issuance provide any supplementary information to market for the years 2004-2011 in Malaysia. Data collected from the Securities Commission Malaysia (SC) and Bloomberg database. This research classifies the sukuk ratings from highest to poor quality. The investigation exercises event study methodology using cumulative average abnormal return (CAAR) on symmetric and asymmetric performances based on the reaction of the FTSE Kuala Lumpur Composite Index (FTSEKLCI) to the news of sukuk issuance. The results designate positive and significant asymmetric reactions on sukuk issuance. The market responds positively and significantly to the announcements of sukuk for the rating of high-quality, excellent and good ratings. However, FTSE KLCI will react negatively for the medium, questionable and weak ratings. The conclusions would be useful to issuers, investors, and decision-makers in assessing the credit risk of sukuk issuance. This study assists the sukuk issuers and investors in making profitable decisions on their investment.

DOI 10.11648/j.jim.20160506.19
Published in Journal of Investment and Management (Volume 5, Issue 6, December 2016)
Page(s) 158-165
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Sukuk Ratings, Event Study, Asymmetric, FTSE KLCI, CAAR

References
[1] Securities Commission Malaysia, “Annual Report of Securities Commission Malaysia 2015”, 2015.
[2] R, Haron and K. Ibrahim, “The Impact of Sukuk on Corporate Financing: Malaysia Evidence”. Journal of Islamic Finance, Vol. 1, Issue 1, 2012, pp. 1–11.
[3] Z, Mohamed, 2008. “Sukuk-A Brief Introduction,” Senior Associate. Azmi & Associates, 2008.
[4] J, Haider and M. Azhar, “Islamic Capital Market: Sukuk and Its Risk Management in the Current Scenario”, Umea School of Business & Economics, Umea University, Sweden, 2010.
[5] A, Said and G. Rihab, “The Determinants of Sukuk Market Development: Does Macroeconomic Factors Influence the Construction of Certain Structure of Sukuk?”, Journal of Applied Finance & Banking, Vol. 3, Issue 5, pp. 251-267, ISSN: 1792-6580, 2013.
[6] M, Micu; E, Remolona and P. Wooldridge, “The Price Impact of Rating Announcements: Which Announcements Matter?” Monetary and Economic Department, BIS Working Papers, No 207, 2006.
[7] AAOIFI, “Investment Islamic Bonds (Shari’ah Standard No. 18). Manama: Accounting and Auditing Organization for Islamic Financial Institutions”, 2008.
[8] Islamic Development Bank, “IDB Annual Report 1426H (2005-2006)”, 2006.
[9] Securities Commission Malaysia, “Annual Report of Securities Commission Malaysia 2011”, 2011.
[10] Y. Ibrahim and M. S. Minai, “Islamic Bonds and the Wealth Effects: Evidence from Malaysia”, Investment Management and Financial Innovations, Vol. 6, Issue 1, 2009.
[11] R. Ameer and R. Othman, “Stock Market Reaction to Bonds Issuance: Evidence from Malaysian Banking Sector”, International Research Journal of Finance and Economics, ISSN 1450-2887, Issue 45, 2010.
[12] S. Modirzadehbami and G. Mansourfar, “Information Content of Islamic Private Debt Announcement: Evidence from Malaysia”, World Academy of Science, Engineering and Technology, 2011.
[13] Z.M. Ashhari, L. S. Chun and A. M. Nassir, ”Conventional vs Islamic Bond Announcements: the Effects on Shareholders’ Wealth”, International Journal of Business and Management. Vol. 4. Issue 6, 2009.
[14] Abdul-Qoyum and M. Ardiansyah, “Testing the Semi-Strong Form Efficiency of Islamic Capital Market with Response to Information Content of Dividend Announcement- A Study in Jakarta Islamic Index”, International Conference on Management (ICM 2011) Proceeding, 2011.
[15] N. Ahmad and S. A. Rahim, “Post-Crisis Stock Market Reactions Following Sukuk Issuance in Malaysia”, Proceeding of the 2nd International Conference on Arts, Social Sciences & Technology (ICAST2012). I2521-1-I2521-12, 2012.
[16] A. Afonso, D. Furceri and P. Gomes, “Credit Ratings and the Euro Area Sovereign Debt Crisis”, Technical University of Lisbon, Department of Economics, 2010.
[17] T. Brandstack, “Do Credit Rating Announcements Matter?” Department of Accounting and Finance, Aalto University School of Economics, 2010.
[18] F. O. Subasi, “The Effect of Sovereign Rating Changes on Stock Returns and Exchange Rates”, International Research Journal of Finance and Economics, ISSN 1450-2887, Issue 20, 2008.
[19] S. J. J. Konijna and H. A. Rijkena, “What Do Rating Agency Announcements Signal?: Confirmation or New Information”, Department of Finance, VU University Amsterdam, Tinbergen Institute, Amsterdam, 2008.
[20] S. Myers and N. Majluf, “Corporate Financing and Investment Decisions When Firms Have Information That Investors Do Not Have”, Journal of Financial Economics, Vol. 13, 1984.
[21] A. Abhyankar and A. Dunning, “Wealth Effects of Convertible Bond and Convertible Preference Share Issues: An Empirical Analysis of the UK Market”, Journal of Banking and Finance, Vol. 23, 1999.
[22] A. P. Serra, “Event Study Tests: A Brief Survey”, Universidade do Porto - Faculdade de Economia (FEP), Vol. 2, No. 3, 2002.
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Author Information
  • Faculty of Economics and Muamalat, Islamic Science University of Malaysia (USIM), Negeri Sembilan, Malaysia

  • Faculty of Economics and Muamalat, Islamic Science University of Malaysia (USIM), Negeri Sembilan, Malaysia

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  • APA Style

    Syazwani Abd Rahim, Nursilah Ahmad. (2016). Investigating FTSE KLCI Using CAAR Estimations Following Sukuk Announcement in Malaysia: Based on Sukuk Ratings. Journal of Investment and Management, 5(6), 158-165. https://doi.org/10.11648/j.jim.20160506.19

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    ACS Style

    Syazwani Abd Rahim; Nursilah Ahmad. Investigating FTSE KLCI Using CAAR Estimations Following Sukuk Announcement in Malaysia: Based on Sukuk Ratings. J. Invest. Manag. 2016, 5(6), 158-165. doi: 10.11648/j.jim.20160506.19

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    AMA Style

    Syazwani Abd Rahim, Nursilah Ahmad. Investigating FTSE KLCI Using CAAR Estimations Following Sukuk Announcement in Malaysia: Based on Sukuk Ratings. J Invest Manag. 2016;5(6):158-165. doi: 10.11648/j.jim.20160506.19

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  • @article{10.11648/j.jim.20160506.19,
      author = {Syazwani Abd Rahim and Nursilah Ahmad},
      title = {Investigating FTSE KLCI Using CAAR Estimations Following Sukuk Announcement in Malaysia: Based on Sukuk Ratings},
      journal = {Journal of Investment and Management},
      volume = {5},
      number = {6},
      pages = {158-165},
      doi = {10.11648/j.jim.20160506.19},
      url = {https://doi.org/10.11648/j.jim.20160506.19},
      eprint = {https://download.sciencepg.com/pdf/10.11648.j.jim.20160506.19},
      abstract = {The intention of the article is to explore whether different rating announcements on sukuk issuance provide any supplementary information to market for the years 2004-2011 in Malaysia. Data collected from the Securities Commission Malaysia (SC) and Bloomberg database. This research classifies the sukuk ratings from highest to poor quality. The investigation exercises event study methodology using cumulative average abnormal return (CAAR) on symmetric and asymmetric performances based on the reaction of the FTSE Kuala Lumpur Composite Index (FTSEKLCI) to the news of sukuk issuance. The results designate positive and significant asymmetric reactions on sukuk issuance. The market responds positively and significantly to the announcements of sukuk for the rating of high-quality, excellent and good ratings. However, FTSE KLCI will react negatively for the medium, questionable and weak ratings. The conclusions would be useful to issuers, investors, and decision-makers in assessing the credit risk of sukuk issuance. This study assists the sukuk issuers and investors in making profitable decisions on their investment.},
     year = {2016}
    }
    

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  • TY  - JOUR
    T1  - Investigating FTSE KLCI Using CAAR Estimations Following Sukuk Announcement in Malaysia: Based on Sukuk Ratings
    AU  - Syazwani Abd Rahim
    AU  - Nursilah Ahmad
    Y1  - 2016/10/31
    PY  - 2016
    N1  - https://doi.org/10.11648/j.jim.20160506.19
    DO  - 10.11648/j.jim.20160506.19
    T2  - Journal of Investment and Management
    JF  - Journal of Investment and Management
    JO  - Journal of Investment and Management
    SP  - 158
    EP  - 165
    PB  - Science Publishing Group
    SN  - 2328-7721
    UR  - https://doi.org/10.11648/j.jim.20160506.19
    AB  - The intention of the article is to explore whether different rating announcements on sukuk issuance provide any supplementary information to market for the years 2004-2011 in Malaysia. Data collected from the Securities Commission Malaysia (SC) and Bloomberg database. This research classifies the sukuk ratings from highest to poor quality. The investigation exercises event study methodology using cumulative average abnormal return (CAAR) on symmetric and asymmetric performances based on the reaction of the FTSE Kuala Lumpur Composite Index (FTSEKLCI) to the news of sukuk issuance. The results designate positive and significant asymmetric reactions on sukuk issuance. The market responds positively and significantly to the announcements of sukuk for the rating of high-quality, excellent and good ratings. However, FTSE KLCI will react negatively for the medium, questionable and weak ratings. The conclusions would be useful to issuers, investors, and decision-makers in assessing the credit risk of sukuk issuance. This study assists the sukuk issuers and investors in making profitable decisions on their investment.
    VL  - 5
    IS  - 6
    ER  - 

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