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Sovereign Wealth Funds and Financial Stability-An Event Study Analysis

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  • Heiko Hesse
  • Tao Sun

Abstract

This paper examines financial stability issues that arise from the increased presence of sovereign wealth funds (SWFs) in global financial markets by assessing whether and how stock markets react to the announcements of investments and divestments to firms by SWFs using an event study approach. Based on 166 publicly traceable events collected on investments and divestments by major SWFs during the period from 1990 to 2009, the paper evaluates the short-term financial impact of SWFs on selected public equity markets in which they invest. The impact is analyzed on different sectors (financial and nonfinancial), actions (buy and sell), market types (developed and emerging markets), and level of corporate governance (high and low score). Results, based on these 166 events, show that there was no significant destabilizing effect of SWFs on equity markets, which is consistent with anecdotal evidence.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/239.

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Length: 17
Date of creation: 01 Oct 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/239

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Related research

Keywords: Sovereign wealth funds; Financial stability; Governance; Asset management; Developed countries; Domestic investment; Emerging markets; Financial institutions; financial sector; financial markets; stock market; equity markets; stock markets; hedge; hedge funds; stock returns; financial market; financial services; stock price; bond; stock prices; equity market; stock market indices; international reserves; domestic financial institutions; stock price reactions; international finance; bond yields; international financial markets;

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References

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  1. Roland Beck & Michael Fidora, 2008. "The impact of sovereign wealth funds on global financial markets," Occasional Paper Series 91, European Central Bank.
  2. Peter Kunzel & Cornelia Hammer & Iva Petrova, 2008. "Sovereign Wealth Funds," IMF Working Papers 08/254, International Monetary Fund.
  3. Edwin M. Truman, 2009. "A Blueprint for Sovereign Wealth Fund Best Practices," Revue d'Économie Financière, Programme National Persée, vol. 9(1), pages 429-451.
  4. William L. Megginson & Bernardo Bortolotti & Veljko Fotak & William Miracky, 2009. "Sovereign Wealth Fund Investment Patterns and Performance," Working Papers 2009.22, Fondazione Eni Enrico Mattei.
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Cited by:
  1. Bao Ngoc Dinh, 2011. "The impact of Sovereign Wealth Fund investments on the performance of listed companies," Post-Print halshs-00658489, HAL.
  2. Gawdat Bahgat, 2011. "Sovereign wealth funds in the Gulf - an assessment," LSE Research Online Documents on Economics 55015, London School of Economics and Political Science, LSE Library.
  3. David Kemme, 2012. "Soverign Wealth Fund Issues and the National Fund(s) of Kazakhstan," William Davidson Institute Working Papers Series wp1036, William Davidson Institute at the University of Michigan.
  4. Knill, April M. & Lee, Bong Soo & Mauck, Nathan, 2012. "Sovereign wealth fund investment and the return-to-risk performance of target firms," Journal of Financial Intermediation, Elsevier, vol. 21(2), pages 315-340.

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