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The effect of Sovereign Wealth Funds’ investments on stock markets

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  • Hélène Raymond

Abstract

This study assesses the reaction of stock markets, when Sovereign Wealth Funds (SWFs) announce that they have taken a stake in a listed company. It adds useful empirical results to the debate on the effect of SWFs on financial markets, which remains so far largely reliant on guess work. We perform an event study using a sample of 50 SWF acquisitions of equity stakes in listed companies around the world, from May 2005 to April 2008. According to our results, the announcement of an acquisition by a SWF has a transitory positive impact on the share price of the target company, but there is no lasting effect. This stands in contrast to the results obtained in the academic literature for the investments of private equity funds, and to a lesser extent pension funds. The tests conducted on a sub-sample of announcements targeting banks only made during the subprime crisis (between July 2007 and April 2008) do not exhibit more lasting effects. This may suggest that markets are not convinced that SWFs alone are capable of restoring the position of the banks concerned. These results are however subject to some caveats, and notably, the relatively small size of the sample as well as a selection bias in favour of transparent SWFs, due to the lack of information on other funds.

Suggested Citation

  • Hélène Raymond, 2009. "The effect of Sovereign Wealth Funds’ investments on stock markets," EconomiX Working Papers 2009-38, University of Paris Nanterre, EconomiX.
  • Handle: RePEc:drm:wpaper:2009-38
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    File URL: http://economix.fr/pdf/dt/2009/WP_EcoX_2009-38.pdf
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    References listed on IDEAS

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    1. Cumming, Douglas & Siegel, Donald S. & Wright, Mike, 2007. "Private equity, leveraged buyouts and governance," Journal of Corporate Finance, Elsevier, vol. 13(4), pages 439-460, September.
    2. Feng, Fang & Sun, Qian & Tong, Wilson H. S., 2004. "Do government-linked companies underperform?," Journal of Banking & Finance, Elsevier, vol. 28(10), pages 2461-2492, October.
    3. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-488, June.
    4. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    5. Roland Beck & Michael Fidora, 2008. "The impact of sovereign wealth funds on global financial markets," Intereconomics: Review of European Economic Policy, Springer;German National Library of Economics;Centre for European Policy Studies (CEPS), vol. 43(6), pages 349-358, November.
    6. Fidora, Michael & Beck, Roland, 2008. "The impact of sovereign wealth funds on global financial markets," Occasional Paper Series 91, European Central Bank.
    7. 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.
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    Cited by:

    1. Luisa ANDERLONI & Daniela VANDONE, 2012. "Sovereign Wealth Fund Investments in the Banking Industry," Departmental Working Papers 2012-24, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.

    More about this item

    Keywords

    Sovereign Wealth Funds; Event Study.;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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