What do Sovereign Wealth Funds Imply for Financial Stability?

Abstract

Purpose – Study the potential implications of sovereign wealth funds (SWFs) on financial stability.

Methodology/approach – By assessing whether and how stock markets react to the announcements of investments and divestments to firms by SWFs, this chapter takes advantage of a hand-collected database on investments and divestments by major SWFs to evaluate the short-term financial impact of SWFs on selected public equity markets in which they invest.

Findings – Results show that there was no significant destabilizing effect of SWFs on equity markets, which is consistent with anecdotal evidence.

Social implications – SWFs could promote financial stability and should be given more development space.

Originality/value of the chapter – This study contributes to the emerging academic literature that seeks to analyze the behavior of SWFs in financial markets.

Citation

Sun, T. and Hesse, H. (2011), "What do Sovereign Wealth Funds Imply for Financial Stability?", Boubakri, N. and Cosset, J.-C. (Ed.) Institutional Investors in Global Capital Markets (International Finance Review, Vol. 12), Emerald Group Publishing Limited, Leeds, pp. 245-262. https://doi.org/10.1108/S1569-3767(2011)0000012012