647 4 TH INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC RESEARCH (4 TH ICBER 2013) PROCEEDING 04 - 05 MARCH 2013. GOLDEN FLOWER HOTEL, BANDUNG, INDONESIA ISBN: 978-967-5705-10-6. WEBSITE: www.internationalconference.com.my INVESTIGATING STOCK MARKET REACTIONS ON SUKUK ISSUANCE BASED ON RATINGS Nursilah Ahmad, PhD Senior Lecturer Faculty of Economics and Muamalat and Research Fellow, Islamic Finance and Wealth Management Institute (IFWMI) Universiti Sains Islam Malaysia (USIM) This research is funded by Research Grant FRGS/1/2011/SS/USIM/02/2 Email: nursilah@usim.edu.my Syazwani Abd Rahim Faculty of Economics and Muamalat Universiti Sains Islam Malaysia (USIM) ABSTRACT The aim of the paper is to examine whether different rating announcements on sukuk issuance carry any new information to market for the period 2004-2011 in Malaysia. Data are collected from the Securities Commission Malaysia (SC) and Bloomberg database. Sukuk are rated from highest to poor quality. The study employs event study methodology using cumulative average abnormal return (CAAR) on symmetric and asymmetric events based on the reaction of the FTSE Kuala Lumpur Composite Index (FTSEKLCI) to the announcement of sukuk issuance. The results indicate positive and significant asymmetric reactions on sukuk issuance. Market reacts positively and significantly to the announcements of sukuk for rating of highest quality, excellent and good, but reacts negatively for medium, questionable and poor ratings. The findings would be useful to issuers, investors and decision-makers in assessing the credit risk of sukuk issuance. Field of Research: Sukuk ratings, event study, asymmetric, FTSE KLCI 1. Introduction In 2008, Malaysia was the largest market for sukuk raising USD5.5billion from 54 issues (MENA Sukuk Report, 2009). During 2008 financial crisis, the global amount of sukuk issuance decreased sharply by 54.5 percent to reach USD15.1 billion, as compared to USD33.1 billion in 2007. The decline in sukuk issuance was due to the credit crunch that forced investors to step aside from the money markets, hence exhausting resources for sukuk as well. The number of global sukuk issuance had weakened in the first half of 2008 and remained lower than the 2007 record. Despite the decline, the prospects for the sukuk market were still positive because of the existing demand. The global financial market affected both Malaysia and the Gulf Cooperation Council (Ahmad & Radzi, 2011). According to Micu, Remolona and Wooldridge (2006), rating agencies face a trade-off between timeliness and volatility while evaluating issuer’s creditworthiness. Information material required to assess an issuer’s creditworthiness arrives at a high frequency. Thus, credit ratings must be continually updated if they are to incorporate the latest information. The updating increases the volatility of credit