Sovereign Wealth Fund Investment Patterns and Performance

Ashby Monk

William Megginson just alerted me to his new paper (written with Bernardo Bortolotti, Veljko Fotak and William Miracky), which uses a proprietary dataset (the Monitor-FEEM Sovereign Wealth Fund database) to analyze investment patterns exhibited by SWFs. The paper offers up some interesting findings:

“We find that a large number of acquisitions are clustered in the finance and banking sector. Using stock price returns as a proxy for firm profitability, we find that target firms underperform during the year preceding SWF investments; accordingly we conclude that SWFs tend to invest in underperforming firms, possibly to minimize political opposition. On average, stocks of targeted corporations exhibit positive abnormal returns of about 0.9% over the three day period including the day on which the SWF investment is announced, the previous and the following day. This could indicate either that investors welcome SWFs as shareholders or the price reaction could merely be a liquidity effect resulting from a temporary-but quite large-increase in demand for target firm shares. While, in cross-sectional analysis, we offer some evidence against a liquidity effect, we will clarify this in subsequent research. Certainly we think it plausible that investors are welcoming SWF investments, as many investments effectively inject new capital in distressed firms.

 Good reading for a long weekend…

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About

This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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