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Sovereign Wealth Funds and Financial Stability-An Event Study Analysis

  • Heiko Hesse
  • Tao Sun

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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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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  1. Roland Beck & Michael Fidora, 2008. "The impact of sovereign wealth funds on global financial markets," Intereconomics: Review of European Economic Policy, Springer, vol. 43(6), pages 349-358, November.
  2. Peter Kunzel & Cornelia Hammer & Iva Petrova, 2008. "Sovereign Wealth Funds; Current Institutional and Operational Practices," 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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