Is Sovereign Wealth Fund Investment Destabilizing?

42 Pages Posted: 16 Jan 2009 Last revised: 1 Jun 2010

April M. Knill

Florida State University College of Business; Florida State University - College of Law

Bong-Soo Lee

Korea Advanced Institute of Science and Technology (KAIST)

Nathan Mauck

University of Missouri - Kansas City

Multiple version iconThere are 2 versions of this paper

Date Written: June 1, 2010

Abstract

We investigate whether accusations by the popular press regarding the potential destabilizing force of sovereign wealth fund (SWF) investment have merit. SWF investments are associated with a reduction in the compensation of risk over the five-year term examined. Firm volatility decomposition suggests that it is mainly idiosyncratic risk that drives these impacts. Granger causality results suggest that SWFs are poorly informed in their investments (compared to the market) or they have nonfinancial motivations. There is no evidence that the media coverage precedes the poor performance. These findings suggest that SWF investment could be potentially destabilizing.

Keywords: Sovereign wealth fund, Risk, Return

JEL Classification: G15, F34

Suggested Citation

Knill, April M. and Lee, Bong-Soo and Mauck, Nathan, Is Sovereign Wealth Fund Investment Destabilizing? (June 1, 2010). Available at SSRN: https://ssrn.com/abstract=1328045 or http://dx.doi.org/10.2139/ssrn.1328045

April M. Knill (Contact Author)

Florida State University College of Business ( email )

Tallahassee, FL 32306-1042
United States
(850) 644-2047 (Phone)

Florida State University - College of Law ( email )

425 W. Jefferson Street
Tallahassee, FL 32306
United States

Bong-Soo Lee

Korea Advanced Institute of Science and Technology (KAIST)

373-1 Kusong-dong
Yuson-gu
Taejon 305-701, 130-722
Korea

Nathan Mauck

University of Missouri - Kansas City ( email )

5100 Rockhill Road
Kansas City, MO 64110-2499
United States

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