The Effect of Liquidity M3 and Exchange Rate on Sukuk Market Size in Malaysia in Short-Term and Long-Term

Abstract

The increase in the size of the sukuk market has become large with time and takes its place among the important topics that need to be studied and developed. This study focuses on the impact of some financial factors on the size of the sukuk market in Malaysia, as it is a leader in the Islamic financial industry, especially the sukuk sector. This study attempts to reveal the relationship between the factors of exchange rate and liquidity M3 as independent variables, and the size of the sukuk market as a dependent variable. This study uses the model of Autoregressive Distributed Lag (ARDL) as well as the test of cointegration to know the relationship between the variables of the study in both short-term and long-term. By examining monthly time series data starting from 04/2011 till 12/2020. The findings appear that the variables of the study have a cointegration relationship in the long run. In the short run, the exchange rate affects the size of the sukuk market significantly negatively, while liquidity M3 influences the sukuk market size positively insignificant. In the long run, the exchange rate has a positive significant effect on the sukuk market size, while the impact of liquidity M3 on the market size of Sukuk is non-significant.