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Is not-real
Is not-real price lawful? price lawful?
The case of Islamic (sukuk) mutual funds
in Indonesia during financial crisis
Dodik Siswantoro 163
Department of Accounting, Universitas Indonesia, Depok, Indonesia

Abstract
Purpose The purpose of this paper is to discuss some unique phenomena on Islamic fixed (sukuk)
mutual fund price during financial global crisis in Indonesia. It aims to show that the sukuk mutual
fund did not adopt the actual price of sukuk which may contradict Islamic teaching with regards to
transparency and could cause investors to make wrong decisions. In addition the paper also aims to
analyse correlation analysis, dependency of sukuk price to conventional bond and proposed
recommendations.
Design/methodology/approach The study applies benchmarking graph analysis, Pearson
correlation as well as Correlogram Granger Causality test and Response to Cholesky. To show that
sukuk did not adopt the actual price, benchmarking analysis and correlation analysis were conducted
as additional tools.
Findings The paper finds that the sukuk price movements were affected by the conventional bond
and have a strong correlation, while the Islamic fixed mutual fund did not apply the actual price, which
was unstabler. This has caused the fund to remain in a steadily increasing trend and stable; in
addition, this has brought about good performance which actually did not show the real price.
Practical implications This research is practically of benefit because it helps to show the
correlation of price movement in sukuk and conventional bond. Fund managers should be transparent
in marking the real price and prudent in managing the liquid reserve of the sukuk mutual fund.
Originality/value This case may only occur in Indonesia as decreasing price of stocks and bonds
in the USA has habitually caused the same to be seen as very expensive in some countries. Thus, bond
price in Indonesia was affected significantly; this was actually caused by panic action. Foreign
investors withdrew their funds because of liquidity and currency depreciation. On the other hand, an
Islamic market that might be based on a conventional system was indirectly affected with
benchmarking price problems. Sukuk mutual fund performance would look nice and stable as it did
not adopt the actual price, this could mislead the performance analysis of the fund.
Keywords Islamic, Sukuk, Price, Indonesia, Mutual fund, Unit trusts, Financial risk
Paper type Research paper

1. Introduction
In emerging countries where the size of the capital market is not very big, it causes
unstable condition in mutual funds (Kaminsky et al., 2001). Similar phenomenon may
occur in Indonesia. Interestingly, it does not affect Islamic fixed (sukuk) mutual fund
severely. This paper tries to show some empirical evidences and observations on
Islamic fixed (sukuk) mutual fund in Indonesia during financial global crisis in 2008.
In this case, the performance of Islamic fixed (sukuk) mutual fund during that crisis looked
stable and outperformed, however this condition did not show the real condition or actual Journal of Islamic Accounting and
price. In this paper, it would be explained in detail why that phenomenon occurred. Business Research
Vol. 3 No. 2, 2012
pp. 163-177
q Emerald Group Publishing Limited
This paper was awarded the Best Paper Award at the International Academic Conference on 1759-0817
Sukuk and Development Challenge 2010 in Indonesia held by Universitas Indonesia. DOI 10.1108/17590811211265966
JIABR In Islam, transparency must be disclosed in all business transaction. Otherwise, it is not
3,2 in line with Islamic teaching due to false price offering otherwise known as cheating
(khilaabah). This was stated 15 times in similar hadith (prophet saying) in different
narrators.
Speaking of mutual fund, it was dated back in USA around 1924s, there were many
changes in types and characters of the fund (Bogle, 2005). In Indonesia, actually it
164 started in the middle of 1990s, in which it was first offered by private in the form of
closed fund. At that time, there were not many bonds and stocks offered, and the
awareness of society on mutual fund was quite low even after reformation in capital
market law during the 1980s.
Then, some requirements for bonds and stocks market to list in the stock market was
lessen by the government in the last 1990s. Just like a statement supply creates its own
demand, this also caused the increasing demand of bond to be offered, which in turns
has thrived the development of mutual fund market. When a company issued bond or
stock, this would cause other sectors grew indirectly by placing their fund in the capital
market to get higher return. This process run simultaneously. Historically, the first
Islamic mutual fund was offered by PT Danareksa Investment Management on 3 July
1997, in form of balanced fund. It consisted of Islamic stock that was formally later called
Jakarta Islamic Index on 3 July 2000 by Indonesian (formerly Jakarta) Stock Exchange
(Siswantoro, 2002). When Islamic capital market was officially introduced on 14 March
2003, it covered all Islamic capital market products under one roof (Securities Exchange
Commission Badan Pengawas Pasar Modal (BAPEPAM)). In the case of Islamic bond,
the first Islamic bond issued by PT Indosat Tbk was mudharabah (profit sharing)
scheme in September 2002 (Siswantoro and Ferdiyan, 2006), while in 2004 ijarah
(leasing) scheme was launched (Bursa Efek Indonesia, 2009). Islamic Government bond
(sukuk) itself was issued in 2008, after supported by Act No. 19/2008 which was
regulated for underlying assets. This would support the development of Islamic capital
products as there are various Islamic bonds and stocks to meet the market demands.
The structure of the paper is as follows, first it states previous research on mutual
fund, scandals and its problems, as well as the case in Indonesia. Second, it explains the
dependency of sukuk from the conventional rate as well as further implication. Third,
the research methodology that is applied to answer the phenomenon. Then lastly,
analysis is to respond to the objectives of the paper.
Principally, the paper would analyze some factors behind the stability of Islamic
(sukuk) mutual fund during financial crisis by observing the different movement
patterns of IFR01 (Islamic Government bond), FR027 (reference price of IFR01), Islamic
sukuk mutual fund and other Islamic fixed (sukuk) mutual funds that would be analyzed
in benchmarking graph, Pearson correlation. Additionally, correlogram Granger
causality test and response to Cholesky are used to analyze IFR01 and FR027 for
affecting factors.

2. Literature review
Scandals in mutual funds may occur in any country because of lack of regulations from
government, or weakness in operation monitoring such as bond late trading and market
timing (Houge and Wellman, 2005), and conflict of interests (Bogle, 2005). In Indonesia,
scandals such as coincident wrong price reference still occurred even under Indonesian
Securities Exchange Commission watch. Fraud scandals have occurred in Indonesia
such as mutual fund link or discretionary fund linked which was not registered under Is not-real
government monitoring and supervision. However, there should be direct access from price lawful?
investors to check the legality and sustainability of them. In fact, online activity
monitoring of mutual fund was shut down without any reason since 2008 until recently.
Thus, investors did not have reliable and independent data to check the condition of
mutual fund. Besides, it would be more risky for big investors if others redeem almost
the whole funds. Liquidity would become a big issue as last portfolio was usually not the 165
good ones after fund managers sold their portfolio for many times to meet the liquidity.
In Indonesia, crisis in mutual fund already existed in 2005 especially for fixed
mutual fund. This has occurred to the conventional as well as the Islamic one. At that
time, the government increased the gasoline price up to 50 percent, which has caused
high inflation. Then, central bank increased interest rate sharply. At the same time this
made most investors to shift their fund from capital market to the bank. While, yield to
maturity (YTM) of bond increased sharply, on the other hand, price decreased sharply
as well. This was worsened by those shifting activities. At the same time, fixed mutual
fund still referred the price to HIMDASUN (Perhimpunan Pedagang Surat Utang
Negara Bond Dealer Association). The problem was that the reference price was
different from the actual price in the trading market. This is what we term as the
not-real price, the price of mutual fund referred to reference price which was not
the actual price of that day transaction price. The actual price has decreased, but the
reference price still remained increasing as it was based on the average price in three
months. The fund manager are seen as practicing cheating or khilaabah as offering
false price. Once, one investor withdrew their funds in huge amount, and this has
caused fund managers to sold bonds at very further big drop price to meet the
liquidity. Most bonds decreased up to 2 20 percent up to 2 30 percent, including
the Islamic ones. Then, other fund managers priced the bond with that big dropped
price (Siswantoro and Dewi, 2011).
In relation to mutual fund, some problems did attach to it. For example, generally in
some countries, problems of bond price in the market may be caused by illiquidity
(Driessen, 2005; Kagraoka, 2005; Kemps and Uhrig-Homburg, 2000; Shi, 2008; Warga,
1992), fund flows in the mutual fund (Dritsakis et al., 2006; Oh and Parwada, 2007;
Shu et al., 2002) which need intervention to maintain the price which decreased
significantly (Cremers et al., 2007). However, to avoid such problems we should refer to
the previous researches. While, the ability to identify the characteristics of funds would
give better results (Chan et al., 2002; Crabbe and Turner, 1995; Kothari and Warner,
2001) or the diversification of funds to reduce risks (ONeal, 1997), and more historical
performance to see future performance (Grinblatt and Titman, 1992; Kahn and Rudd,
1995). However, Indonesia indeed has different phenomenon due to emerging market
issue, but some lessons can be taken from them.
In general, mutual fund performance was relatively better in the short term, but not
in the long term (Bollen and Busse, 2005; Carhart, 1997; Harless and Peterson, 1998),
not quite superior compared to some benchmarks (Detzler, 1999). Therefore, investors
need to be cautious when investing in mutual fund. Different results were found in UK;
there was a significant persistence in the relative rankings of fund (Fletcher and
Forbes, 2002). In the case of Islamic bond in Indonesia, actually we can manage the
portfolio directly to obtain better and specific Islamic bond (sukuk) rather than in
mutual fund. Especially, if the fund is big, we may possibly choose good Islamic bond
JIABR at low price and manage them in time preference (for selling) without hampering the
3,2 whole weighted price like in the mutual fund.
Furthermore, there were some characteristics between ethical and conventional
mutual funds conducted by Bauer et al. (2005), where they analyzed 103 ethical basis
mutual funds in the UK, USA and Germany. They found no significant differences
among them. On the other hand, it gave smaller returns for ethical basis mutual fund
166 than non-ethical ones in USA (Mueller, 1994). Similar cases also occurred in Indonesia,
which may be caused by financial crisis period in 2007-2008. In fact, they consisted of
materials and energy stocks for Islamic mutual fund in Indonesia, of which the
performance decreased significantly (Syrifani, 2009). They highly depended on the
price of materials and energy which was dropped.
Sharp price decrease in bond that was caused by withdrawal in mutual fund was not
always mainly caused by fundamental problems (Altman, 1987). In Indonesia, bonds are
traded over-the-counter-market (OTC), where the numbers between sellers and buyers
may not be equal. Someone would like to sell but what if no one buys, so they have to
make the offer lower, but actually the price is not that low, opposite condition can occur
to buyers, vice versa. This, however, has caused volatile price market which was
worsened during financial crisis. In some countries, like USA, the spread of offer and bid
price tends to narrow, showing effective market (Hong and Warga, 2000), in addition,
this can be seen also as liquidity problems (Sarig and Warga, 1989; Stock and Schrems,
1984). Similar results were found in Japan (Boudoukh and Whitelaw, 1993). The
volatility itself was caused by changes in interest rates and possibility of default risks
(Hopewell and Kaufman, 1973). In Indonesia, it occurred when there was turning point of
interest rate when it already arrived at the bottom or peak level. This has been discussed
by Siswantoro and Dewi (2011).

3. Benchmarking issues
Islamic Government bond utilized ijarah and lease back scheme, it is actually similar to
leasing scheme (Siamat, 2008) (Figure 1 for further details). The difference between
conventional and Islamic bonds is the absence of collateral and special purpose vehicle
(SPV) in conventional bonds. This is because they are based on interest coupon rate.
While, in Islamic bonds, applies leasing or rental scheme. On the other hand, this is
contradictory to Act No. 11/2004 which prohibits selling of government assets. In fact,
SPV is government itself, so there is no selling transfer outside government. Its assets
would become collateral in the scheme. This would be a problem if there is a default
payment when it is at maturity date. The collateral can be taken by investors.
The important issue to be addressed in issuing of Islamic bond is the rate of
determination of the Islamic bond. It usually charged on the market price, and was based
on a research conducted by arrangers. It refers to the conventional bond which has
similar characteristics such as maturity, rating, business type, and bond scheme
(variable or fixed). In the case of IFR01, it referred to FR027 which has similar
characteristics in term of maturity (other bonds such as FR048 (maturity date is at
4 December 2008) and FR049 (maturity date is at 15 September 2013) (this is also
compared by arrangers to see the spread rate, however, they have different maturity
date with IFR01). Therefore, in the case of leasing rate, it simply refers to the
conventional bond rate. However, leasing rate should be different from conventional
coupon rate as it is attached to different risks. Similar method was also applied in
 Is not-real
price lawful?

167

Figure 1.
Scheme of Islamic
bond issuance
Source: Ministry of Finance, Republic of Indonesia (2010)

determining Islamic bond rating, however, it still refer to the conventional method
(Siswantoro and Ferdiyan, 2006). In accounting, standard No. 110 on accounting sukuk
(recently issued in 2011, effective 1 January 2012) clearly prohibit the adoption of interest
rate for valuation basis or reference. Besides, other method for valuation can be in any
method such as index of profit sharing rate (Figure 2).
Government in practicing Islamic bond through ijarah scheme, because there are
some strategies in developing budget financing through Islamic scheme, they are
(Waluyanto, 2008):
.
financing for national budget, it uses sale and lease back scheme, head and sub
lease;
.
cash financing money market mismatch, it uses sale and lease back scheme,
head and sub lease; and
. project financing, it uses istishna (sale-purchase), musharaka (partnership),
mudharaba (partnership), and hybrid (aqad combination).

Other Islamic financing scheme such as mudharaba has been conducted by State
Owned Company, PT Indosat Tbk. (used satellite revenue for profit sharing), PTPN
7 (used agricultural income for profit sharing). There is not much critics for
mudharabah bond as they are on profit sharing basis for the coupon rate. So far, only
two schemes (mudharaba and ijarah) are allowed by National Supervisory Board in
Indonesia.

4. Research methodology
This research uses some statistical analysis and tools such as Pearson correlation,
Granger causality and correlogram. Pearson correlation was used as the data ratio
JIABR 14%
3,2
13%

12%

168 11%

10%

9%

8%
14-Feb-08

28-Feb-08

13-Mar-08

27-Mar-08

10-Apr-08

24-Apr-08

8-May-08

22-May-08

5-Jun-08

19-Jun-08

3-Jul-08

17-Jul-08

31-Jul-08
Figure 2.
Benchmarking to
determine coupon rate FR0027 FR0048 FR0049
for Sukuk
Source: Danareksa, Mandiri Sekuritas, and trimegah Securities (2008)

to see the correlation among variables. Furthermore, correlogram test was used to see
whether the data is stationary or otherwise. As data is not stationary, it is converted
first by using first difference, then Granger causality test is conducted. It is used to
verify which variable that becomes independent (affecting) or dependent (affected)
between IFR01 as sukuk and FR027 as the conventional bond for price reference.
Whereas, to check the not-real price of Islamic sukuk mutual fund, benchmarking
graph was employed as well as the Pearson correlation. We can see the price difference
movement in the graph.
Sample that is employed in the research:
.
IFR01 is the first issuance of sukuk (Islamic bond) by Republic of Indonesia as
Rp2.7 tn. Applying the ijarah basis, it issued in 2008 until 15 August 2015 with
coupon rate of 11.8 percent (ijarah basis). Data is taken from Ministry of Finance,
Republic of Indonesia.
.
FR027, is conventional bond at maturity date on 15 June 2015. Data is taken from
Ministry of Finance, Republic of Indonesia.
.
Islamic sukuk mutual fund, is Islamic fixed mutual fund which is based mainly
on sukuk (IFR01) and it is called Trim syariah sukuk, issued by PT Trimegah.
Data is taken from Bisnis Indonesia (newspaper).
.
Islamic fixed mutual fund mainly consisted of Islamic corporate and government
bond (sukuk). They are BNI Dana Syariah, BIG Dana Muamalah, I-Hajj Syariah
Fund and PNM Amanah Syariah. Data is taken from Bisnis Indonesia
(newspaper).

There are two types of data period used in this research:

 (1) Based on IFR01, this started its issuance from 26 August 2008 to 19 June 2009. It Is not-real
compared IFR01 to some Islamic fixed (sukuk) mutual funds. price lawful?
(2) Islamic based IFR01 of Islamic sukuk mutual fund, this started from its issuance
from 4 November 2008 to 19 June 2009, it compared IFR01 to FR027.

All the data refer to the availability of mutual fund information; this may be caused by
suspended stock market in 2008, and national holiday which causes differences. So, it 169
has already been balanced.

5. Some analyses
Benchmarking graphs would be added in the analysis as it shows objectivity in
evaluating the performance of data apparently. IFR01 (Figure 3) since issuance had
likely increased slightly for a couple of days, and then it dropped significantly to
almost 0.75 at the end of October 2009. It fluctuated, and then it started to increase on
21 November 2009 (i.e. following the track of mutual funds line graphs). However, its
price has been fluctuating ever since with some occasionally shocks occurring.
During the decrease of IFR01, other Islamic fixed (sukuk) mutual fund continue
increasing in a steady trend. However, when IFR01 increased, it was only one
mutual fund (BNI Dana Syariah) that followed its track (however, it has negative
correlation, see Table I). At the end, both were still below other funds. This
phenomenon could be explained as those which remained steady while IFR01
decreased sharply because they referred to reference price (based on HIMDASUN
Perhimpunan Pedagang Surat Utang Negara/Bond Dealer Association) which
adopted the average price. This is known as the not-real price of Islamic fixed

1.15
1.1
1.05
1
Index

0.95
0.9
0.85
0.8
0.75
0.7
8/26/2008
9/9/2008
9/23/2008
10/7/2008
10/21/2008
11/4/2008
11/18/2008
12/2/2008
12/16/2008
12/30/2008
1/13/2009
1/27/2009
2/10/2009
2/24/2009
3/10/2009
3/24/2009
4/7/2009
4/21/2009
5/5/2009
5/19/2009
6/2/2009
6/16/2009

Date
Figure 3.
BNI Dana Syariah I-Hajj Syariah Fund PNM Amanah Syariah Benchmarking graphs of
BIG Dana Muamalah IFR01 other Islamic fixed (sukuk)
mutual fund
Source: Bisnis Indonesia
JIABR
BNI D S I-HAJJ S F PNM A S BIG D M IFR01
3,2
BNI D S Pearson correlation 1.000 0.363 0.370 0.365 2 0.215
Sig. (two-tailed) 0.000 0.000 0.000 0.000 0.002
n 197 197 197 197 197
I-HAJJ S F Pearson correlation 1.000 0.991 0.998 0.598
170 Sig. (two-tailed) 0.000 0.000 0.000 0.000
n 197 197 197 197
PNM A S Pearson correlation 1.000 0.985 0.641
Sig. (two-tailed) 0.000 0.000 0.000
n 197 197 197
BIG D M Pearson correlation 1.000 0.575
Sig. (two-tailed) 0.000 0.000
Table I. n 197 197
Correlation of IFR01 and
other Islamic fixed Note: * *Correlation is significant at the 0.01 level (two-tailed)
(sukuk) mutual funds Source: Data result

mutual fund, if they may adopt the actual price of IFR01 (which is also included in
their portfolio), their price would not be high and stable.
However, that good performance would attract investors to buy the fund. If
investors buy it, actually they buy net asset value (NAV) index at higher level whilst
the real price should be lower. This actually is not in line with Islamic teaching. Fund
managers may feel cheated or khilaabah, which is prohibited. Then, problems might
occur if there were investors who would like to withdraw fund in huge amount which
at the same time there was no sufficient cash in the portfolio. Some fund managers
usually prohibit their clients from withdrawing it. They warn them that a sharp price
decrease could occur and other investors could panic in seeing the withdrawal and so
on. Thus, the performance of those mutual funds would be nice and stable. On the other
hand, if they would like to withdraw, fund manager must sell sukuk with lower price.
This would affect NAV, it could become lower, and then the investors that had
withdrawn will suffer losses. Liquidity problems could also occur if they have to wait
for the price to be recovered. There should be mutual understanding on this issue
between investors and fund manager if they would like to sell their fund to mitigate
smaller NAV as it is not stated in the requirement. However, this once occurred in 2005,
some Islamic fixed (sukuk) mutual funds were also affected, they were forced to adopt
actual price which made the funds index to harshly (Siswantoro and Dewi, 2011). The
price of Islamic bond was affected by conventional bond as it was sold in huge amount
but no buyer at all, then it decreased to 2 30 percent within one to two days.
Then, one of the solutions for this case is by providing protected funds to immune
the index from a sharp fall. Therefore, this unresolved problem always occur in one
period and raised a question, should Islamic fixed (sukuk) fund adopt the real
price which is the actual price (mark to market) or does it need special treatment? The
problem may still occur as the actual price is not always available because limited
transactions occur for sukuk. On the other hand, Ministry of Finance has their own
daily price (only the Islamic Government bond (sukuk), not the corporate one), but it is
only for internal purpose. Actually, fund managers could refer to the conventional
bond and asking permission from Ministry of Finance to get the price.
 All Islamic mutual funds were significantly correlated to IFR01 but the correlation Is not-real
was below 0.65. This means that these Islamic mutual funds have different price price lawful?
movements which may not follow the actual price. On the other hand, BNI Dana
Syariah gave a negative relationship to IFR01. Even though, they tried to follow the
price movement of IFR01 at the end of 2008. Among them (excluding BNI Dana
Syariah) they correlated very high (above 0.99). This showed that both might have
similar price treatment (adopt the average price of HIMDASUN). In addition, the 171
correlation also shows that the benchmarking graph could not show the correlation
analysis in detail as described in the previous paragraph above.
To anticipate the sharp decrease, fund managers should be able to handle the
overreaction from their clients to withdraw fund in huge amounts as it is usually only
temporary shock or they had to be able to provide big cash to anticipate huge redemptions.
To enable them sell when the price is at the top. The proportion of safe money market in the
portfolio should be maintained effectively to anticipate such a huge redemption.
When Islamic sukuk mutual funds (Trim Syariah Sukuk) based on IFR01 was issued, the
price of IFR01 was very low. So, it benefited fund manager. They could get capital gain as
they bought at low or discounted price. It is shown in the graph (Figure 4), the price of
fund increased faster and higher than IFR01 and FR027. However, in the next period when
IFR01 and FR027 price increased higher, the Trim Syariah Sukuk did not follow it. This
might be caused by a cautious action taken by the manager to anticipate some
withdrawals. They might be reluctant to adopt actual price which was high. IFR01 itself
did not follow FR027 when the price increased or was higher. Theoretically, IFR01 price
should be higher than FR027 as it is covered by collateral which gives better inherent value.
From the graph we could predict that the correlation between them to IFR01 was
higher than it was in the previous graph. Both, IFR01 and FR027 had high correlation
(0.938) while Islamic sukuk mutual fund based on IFR01 (Trim Syariah Sukuk)

1.4
1.35
1.3
1.25
1.2
Index

1.15
1.1
1.05
1
0.95
0.9
11/4/2008

11/18/2008

12/2/2008

12/16/2008

12/30/2008

1/13/2009

1/27/2009

2/10/2009

2/24/2009

3/10/2009

3/24/2009

4/7/2009

4/21/2009

5/5/2009

5/19/2009

6/2/2009

6/16/2009

Date Figure 4.
Trim Syariah Sukuk FR27 IFR01
Benchmarking graphs
IFR01-FR027 and Islamic
mutual fund based IFR01
Source: Bisnis Indonesia
JIABR was 0.886 (Table II). This was better than previous mutual funds. However, this might
3,2 be caused by it based on IFR01, so the movement was similar to it. The correlation
analysis may show that the higher correlation, the higher possibility in the adoption of
actual price of the sukuk (IFR01) as it was based on IFR01.
To check whether there is a consistent pattern between IFR01 and FR027, as the
coupon rate of IFR01 refers to FR027 Granger causality test was used. It shows which
172 variable influencing the other variables. First, the data were tested to check whether
they were stationer or not. As both data were not stationer (see Appendix), we
converted to use first difference (Tables AII and AIV). The result can be seen in
Table III, which shows that FR027 has a significant effect to IFR01. This is consistent
to the previous statement that IFR01 first referred to FR027 to determine its coupon
rate. This also can be a supportive argument to refer to conventional bond price by
Islamic bond as the price was not daily traded.
Next, the effect of variable changes to others was tested. From Figure 5, we can see
that 1 SD of FR027 has caused a change/shock to almost 0.4 to IFR01. Then, it is stable
in period 4. While, IFR01 gives a maximum effect positively in period 3, then it
becomes relatively stable in period 4 and completely stable in period 7.
6. Conclusions
Conclusions that can be drawn from this paper are:
.
IFR01 and other Islamic fixed mutual funds have varied correlation, this may
cause the Islamic mutual funds to consist of various sukuk (including the
corporate and government sukuk type). The lowest was 2 0.215 and the highest
was 0.641. However, not all Islamic fixed mutual fund dominantly consisted of
sukuk (IFR01). The adoption of actual price by Islamic mutual fund should cause
higher correlation than the movement price of sukuk.

TRIM S S FR27 IFR01

TRIM S S Pearson correlation 1.000 0.858 0.886

Sig. (two-tailed) 0.000 0.000 0.000
n 152 152 152
FR27 Pearson correlation 1.000 0.938
Sig. (two-tailed) 0.000 0.000
n 152 152
IFR01 Pearson correlation 1.000
Table II. Sig. (two-tailed) 0.000
Correlation of IFR01, n 152
FR027 and Islamic
(Sukuk) mutual funds Note: *Correlation is significant at the 0.01 level (two-tailed)
based IFR01 Source: Data result

Null hypothesis Obs. F-statistic Probability

D(FR027) does not Granger cause D(IFR01) 148 13.7832 3.4 102 6
Table III. D(IFR01) does not Granger cause D(FR027) 0.36272 0.69642
Granger causality tests
of IFR01 and FR027 Source: Data result, sample 151, lags 2
 Response to Cholesky One S.D. Innovations 2 S.E. Is not-real
2.0
Response of D(IFR01) to D(IFR01)
2.0
Response of D(IFR01) to D(FR027)
price lawful?
1.6 1.6

1.2 1.2

0.8 0.8
173
0.4 0.4

0.0 0.0

0.4 0.4

0.8 0.8
1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10

Response of D(FR027) to D(IFR01) Response of D(FR027) to D(FR027)

1.2 1.2

1.0 1.0

0.8 0.8

0.6 0.6

0.4 0.4

0.2 0.2

0.0 0.0

0.2 0.2
1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 Figure 5.
Response graphs
Source: Data

.
IFR01 and Islamic sukuk mutual fund (Trim Sukuk Syariah) based on IFR01 has
significant correlation (0.886). But, graphically when both price bonds increased
higher, the fund (sukuk mutual fund) did not follow it because of the withdrawal
actions for reserve. Fund manager did not apply marked to market price method in
the fund, because they can manage accordingly. But, if they conduct it on purpose
for their benefits and interest, they may violate the transparency principle and can
be seen as cheating or khilaabah. It is not in line to Islamic teaching.
.
The correlation of IFR01 and FR027 was so high (0.938), but IFR01 had a
relatively and stable price movement. For secular investors, they can choose any
one that benefits them as it has similar characteristics. But not for Muslims, they
have to stick to Islamic compliant product due to Islamic teaching requirements.
.
FR027 has a significant effect to IFR01 empirically by Granger causality (this
was already proved by the coupon rate determination when first issuance). Its
dependency is unavoidable as it assumed having similar characteristics.

7. Recommendations
In addition, some useful recommendations from this issue are:
.
It is important to separate Islamic and conventional bond market which has
different nature and characteristics. Therefore, there should be a moral obligation
for Islamic bond investors not to speculate sukuk which can cause losses to others
JIABR and to trade by un-Islamic way. This is also applied for Islamic fixed mutual fund
3,2 investors. Thus, trading bonds is permissible but for some urgent reasons.
However, this nature of Islamic bond is for investment, it is different from the
conventional one.
.
Islamic fixed and sukuk mutual funds should adopt the actual price of Islamic
bond (sukuk) even though there will be a volatility of Islamic fixed mutual fund
174 performance in the market. Conservatism principle can be a better solution for
this, which adopted whichever is lower for the price between the actual price and
reference price (HIMDASUN). However, this reflects the capability of fund
manager to maintain their funds. In addition, an independent body is necessary
to monitor and to observe the price reference. So far, moving average system is
not very useful. In fact, conventional fixed mutual fund have already adopted the
actual price which caused fluctuate in the graph performance.
.
The permissible maximum fund for each investor should be based on asset under
management (AUM), not the proposed unit. So, there will be no big investors that
can affect the stability of portfolio index when they would like to withdraw,
especially in an illiquid market. In this case, transparency must be expressed by
fund manager to the investors.
.
The maximum of money market position in each portfolio should be increased, so
far the authority only permits maximum of 20 percent from total assets. This is to
avoid the non-liquidity of the bond market. Even though, it may affect the
performance of the fund slightly. Perhaps minimum money market requirement is
needed to anticipate such a huge redemption, for example 10 percent.

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Appendix

Autocorrelation Partial correlation AC PAC Q-stat. Prob.

.j * * * * * * *j .j * * * * * * *j 1 0.971 0.971 145.11

.j * * * * * * *j *j. j 2 0.937 20.082 281.34
.j * * * * * * *j .j. j 3 0.905 0.002 409.19
.j * * * * * * *j *j. j 4 0.867 20.123 527.21
.j * * * * * * j .j. j 5 0.831 0.048 636.56

.j. j .j. j 33 2 0.016 0.004 1,318.7
.j. j *j. j 34 2 0.018 20.086 1,318.8
.j. j .j. j 35 2 0.024 20.025 1,318.9
Table AI. .j. j *j. j 36 2 0.031 20.075 1,319.1
Correlogram of
FR027 data Note: Sample 151
 Is not-real
Autocorrelation Partial correlation AC PAC Q-stat. Prob.
price lawful?
.j * * j .j * * j 1 0.242 0.242 8.9968
.j * j .j * j 2 0.151 0.098 12.522
.j * j .j. j 3 0.107 0.054 14.299
.j. j *j. j 4 20.049 2 0.106 14.679
.j. j .j * j 5 0.063 0.084 15.300 177

.j * j .j * j 33 0.101 0.099 46.666
.j * j .j. j 34 0.100 0.045 48.632
.j. j .j. j 35 0.062 0.037 49.385
.j. j .j. j 36 0.028 2 0.034 49.541
Table AII.
Note: Sample 151 Result of first for FR027

Autocorrelation Partial correlation AC PAC Q-stat. Prob.

.j * * * * * * *j .j * * * * * * *j 1 0.946 0.946 137.90

.j * * * * * * *j .j. j 2 0.902 0.060 263.93
.j * * * * * * *j .j * j 3 0.875 0.157 383.44
.j * * * * * * j *j. j 4 0.839 2 0.076 494.08
.j * * * * * * j .j. j 5 0.805 0.017 596.63

*j. j *j. j 33 2 0.115 2 0.097 1,197.6
*j. j .j. j 34 2 0.113 0.038 1,200.1
*j. j *j. j 35 2 0.117 2 0.079 1,202.9
*j. j .j. j 36 2 0.120 0.010 1,205.7 Table AIII.
Correlogram of
Note: Sample 151 IFR01 data

Autocorrelation Partial correlation AC PAC Q-stat. Prob.

*j. j *j. j 1 20.087 2 0.087 1.1483
* *j. j * *j. j 2 20.200 2 0.209 7.3187
.j * j .j. j 3 0.094 0.058 8.6885
.j. j .j. j 4 0.016 2 0.012 8.7274
.j * j .j * j 5 0.068 0.105 9.4521

.j. j *j. j 33 20.055 2 0.083 35.720
.j. j .j. j 34 0.040 0.037 36.035
.j. j *j. j 35 20.010 2 0.074 36.053
.j. j .j. j 36 0.009 0.034 36.069
Table AIV.
Note: Sample 151 Result of first for IFR01

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