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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.

Suggested Citation

  • Heiko Hesse & Tao Sun, 2009. "Sovereign Wealth Funds and Financial Stability—An Event Study Analysis," IMF Working Papers 09/239, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:09/239
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    References listed on IDEAS

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    1. 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.
    2. Peter J 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. 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.
    5. Fidora, Michael & Beck, Roland, 2008. "The impact of sovereign wealth funds on global financial markets," Occasional Paper Series 91, European Central Bank.
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    Citations

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    Cited by:

    1. Nicolas DEBARSY & Jean-Yves GNABO & Malik KERKOUR, 2016. "Sovereign Wealth Funds’ cross-border investments: assessing the role of country-level drivers and spatial competition," LEO Working Papers / DR LEO 2173, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    2. Bao Ngoc Dinh, 2011. "The impact of Sovereign Wealth Fund investments on the performance of listed companies," Post-Print halshs-00658489, HAL.
    3. Ciarlone, Alessio & Miceli, Valeria, 2016. "Escaping financial crises? Macro evidence from sovereign wealth funds' investment behaviour," Emerging Markets Review, Elsevier, vol. 27(C), pages 169-196.
    4. Dariusz Urban, 2016. "The Investment Attractiveness of Companies Listed on the Warsaw Stock Exchange to Sovereign Wealth Funds," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 66(2), pages 333-350, June.
    5. 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.
    6. Bryan J. Balin, 2010. "The impact of the global economic crisis on sovereign wealth funds," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, vol. 24(1), pages 1-8, May.
    7. Jean-Francois Carpantier & Wessel Vermeulen, 2014. "Emergence of Sovereign Wealth Funds," OxCarre Working Papers 148, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    8. 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.
    9. Kamiński, Tomasz, 2017. "Sovereign Wealth Fund investments in Europe as an instrument of Chinese energy policy," Energy Policy, Elsevier, vol. 101(C), pages 733-739.
    10. Valeria Miceli, 2013. "Do sovereign wealth funds herd in equity markets?," Quantitative Finance, Taylor & Francis Journals, vol. 13(10), pages 1503-1518, October.
    11. Bahgat, Gawdat, 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.
    12. 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.

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