The Sovereign Wealth Fund Discount: Evidence from Public Equity Investments
57 Pages Posted: 9 Sep 2013 Last revised: 11 Apr 2015
Date Written: February 10, 2015
Using a sample of 1,018 Sovereign Wealth Fund (SWF) equity investments in publicly traded firms and a control sample of 5,975 transactions by private-sector financial institutions over 1980-2012, we find that announcement-period abnormal returns of SWF investments are positive, but lower than those of comparable private-sector investments by approximately 2.67 percentage points. We do not find evidence of long-term stock price performance of SWF investment targets differing from that of private-sector investment targets. We do find, however, significant differences among SWFs which are only partially captured by the short-term market reaction: firms acquired by passive funds tend to underperform over the following three years, while positive abnormal returns are associated with actively monitoring SWFs. We conclude that SWFs’ corporate governance role tends to affect the value of the firm.
Keywords: Sovereign wealth funds, International financial markets, Government policy and regulation
JEL Classification: G32, G15, G38
Suggested Citation: Suggested Citation