THE BEHAVIORS OF CONVENTIONAL AND ISLAMIC BONDS IN MALAYSIA DURING COVID-19

Abstract

The study empirically examines the behaviors of short-term and long-term bonds in Malaysia for both conventional and Islamic during COVID-19 crisis. The relationship between short-term and long-term interest rates yield is tested applying Expectation Theory. The non-stationary time series models of cointegration analysis are employed upon weekly data from April 1, 2020, to December 29, 2021. Three different maturities of bond analyzed in the study are three-month, three-year, and ten-year bonds. The interest rates of three-month short-term bonds are found to have no stable long-run equilibrium with the three-year and ten-year long-term bonds for both conventional and Islamic. The results however display a cointegration exist between the two long-term bonds namely three-year and ten-year for both conventional and Islamic. There is nevertheless no causality effect exhibited by the cointegrating variables for both conventional and Islamic. This information is imperative for policy makers and retail investors in understanding the reaction and performance bonds in Malaysia, specifically during the COVID-19 crisis. The insight could shed some input and assist in making more viable investment decisions.