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Sovereign Wealth Funds: Their Investment Strategies and Performance

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Author Info
Chhaochharia, Vidhi
Laeven, Luc

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Abstract

Sovereign wealth funds have emerged as an important investor of global equity, attracting growing attention. Despite concerns that sovereign wealth fund investments may serve political objectives and be in conflict with national interests, little is known about the investment objectives and performance of sovereign wealth funds. We collect new data on foreign equity investments by sovereign wealth funds. We find that sovereign wealth funds largely invest to diversify away from industries at home but that they do so predominantly in countries that share the same culture, suggesting their investment rules are not entirely driven by profit maximizing objectives. Share prices of firms respond favorably when sovereign investment funds acquire stakes, in part because these investments often take place when firms are in financial distress. However, the long-run performance of equity investments by sovereign wealth funds tends to be poor, consistent with imperfect portfolio diversification and poor corporate governance.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6959.

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Date of creation: Sep 2008
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Handle: RePEc:cpr:ceprdp:6959

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Related research
Keywords: Asset allocation; Corporate governance; Sovereign wealth funds;

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G3 - Financial Economics - - Corporate Finance and Governance

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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Gabriel Enrique Alberola & José María Serena, 2009. "Sovereign external assets and the resilience of global imbalances," Banco de España Working Papers 0834, Banco de España. [Downloadable!]
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