Are sovereign wealth fund investments destabilizing?

• Main Authors: Pang, Andy Shang Yuan, Lin, Rachelle Wei Xuan, Mok, Shayna Chien Ru
• Other Authors: Siriwan Chutikamoltham
• Format: Final Year Project
• Language: English
• Published: 2011
• Subjects: DRNTU::Business::Finance::Funds
• Online Access: http://hdl.handle.net/10356/43921
• Institution: Nanyang Technological University

Sovereign Wealth Funds are growing in number and in size recently. Their investments have spread globally and they are now a major investor in the world. The investing decisions of Sovereign Wealth Funds can potentially affect both the fundamentals of an individual stock such as its risk profile and value, and also the global market as a whole. Jen [2007] estimated that should these investors decide to invest a significant part of their current holding of US$5.6 trillion worth of assets, it could raise the global P/E ratio by up to 10%. The major influence of Sovereign Wealth Funds poses a question to investors worldwide - would the rise of Sovereign Wealth Funds and their investments bring about additional volatility to the markets? This report seeks to investigate the impact of Sovereign Wealth Funds’ investments on the volatility of the financial markets. An empirical examination of the relationship between Sovereign Wealth Fund investments and the change in volatility of stock returns of target companies was carried out. It was discovered that Sovereign Wealth Funds’ investments led to an increase in short-term volatility in stock returns, however, in the long run, the volatility of stock returns decreases significantly. In addition, both the size of SWF investment and the size of shareholding sought are important factors in affecting the volatility of the stock returns of the target company.