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Shanghai, Dubai, Mumbai Or Goodbye?

Author

Listed:
  • Surendranath JORY

    () (Department of Finance, School of Management, University of Michigan – Flint)

  • Mark PERRY

    () (School of Management, The University of Michigan – Flint)

  • Thomas A. HEMPHILL

    () (School of Management, The University of Michigan – Flint)

Abstract

Starting in 2007, Sovereign Wealth Funds (SWFs) from Asia and the Middle East have invested billions of dollars in major U.S. financial firms. The primary driving force behind their growth is rising commodity prices, in particular oil. Given that SWFs represent a relatively new, cash-rich investment group, we studied the public policy concerns with their investments, SWFs mode of entry, and how does the market react to the investment. SWFs lack of transparency with regards to their investment motives and governance structure is cause for concern. While taking full opportunity of depressed security prices as a result of the 2007-2008 financial crisis, they are also being prudent by investing mostly in preferred stocks and fixed-income convertible securities of large U.S. corporations that are followed by many analysts and are highly liquid. Despite investing handsomely in U.S. targets and adopting a hands-off approach toward management; the liquidity crisis continues to perpetuate the decline in SWF-targets’ stock price post-investment. Using an event study parameter approach, we found the short-run market reaction to be statistically insignificant in 11 out of 12 announcements of SWF investments; but in the months following the investment, SWF-targets underperform both the S&P500 and the Dow Jones Financial Services Index Fund.

Suggested Citation

  • Surendranath JORY & Mark PERRY & Thomas A. HEMPHILL, 2009. "Shanghai, Dubai, Mumbai Or Goodbye?," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 4, pages 103-123, November.
  • Handle: RePEc:aic:revebs:y:2009:i:4:jorys
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    File URL: http://rebs.ro/resource/REBS_4/Research%20Paper/Jory,S_-_Shanghai_Dubai_Mumbai_or_Goodbye.pdf
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    Cited by:

    1. Kotter, Jason & Lel, Ugur, 2011. "Friends or foes? Target selection decisions of sovereign wealth funds and their consequences," Journal of Financial Economics, Elsevier, vol. 101(2), pages 360-381, August.

    More about this item

    Keywords

    Stock Market; Sovereign Wealth Funds (SWFs); SWF-targets’ stock price post-investment;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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