Abstract
This paper investigates the impact of financial risk factors on the dynamics of Islamic bonds (sukuk) yields in the case of the five largest country sukuk markets in the world which are for Malaysia, United Arab Emirates (UAE), Saudi Arabia, Qatar and Bahrain covering the period from November 2010 to April 2015. We employ the quantile regression analysis to examine the impact of stock returns volatility, oil price volatility and the financial stress in the money, bond, and equity markets on sukuk yields under different market conditions. Empirical results show that global financial conditions affect sukuk yields across all quantiles for all countries. However the impact of regional financial conditions is limited to lower and intermediate quantiles for Saudi Arabia and in the extreme lower and upper for the case of Bahrain. The results show also that the sukuk yields are affected differently by local stock returns volatility and oil prices volatility, mainly in the tail distributions, across countries, offering international investors different investment alternatives and portfolio diversification opportunities across sukuk markets conditions.