Are Sovereign Wealth Funds Contrarian Investors?

Valeria Miceli, Alessio Ciarlone

Risultato della ricerca: Working paper

Abstract

This paper investigates the determinants of the investment activity of Sovereign Wealth Funds (SWFs) at a macro level, with special emphasis on the possible reaction to a financial crisis in a potential target economy. The analysis relies upon a specially built proprietary database, which encompasses 1,903 acquisition deals spanning the period 1995-2010 and involving 29 out of the 69 existing SWFs. According to a three-step modelling approach, we find that this class of investors prefers to invest in countries with a higher degree of economic development, larger and more liquid financial markets, institutions that offer better protection of legal rights, and a more stable macroeconomic environment. Most importantly, and in stark contrast with the existing empirical literature on other major institutional investors, SWFs seem to engage in ‘contrarian’ investment behaviour, i.e. increasing their acquisitions in countries where crises hit. The results are shown to be valid if we consider both the likelihood of a country being the target of SWFs’ investments and the amount SWFs choose to invest in each country. Capital flows stemming from SWFs’ acquisition activity worldwide may therefore eventually have a stabilizing effect on local markets during periods of financial turmoil, protecting the targeted countries from foreign shocks instead of propagating them globally.
Lingua originaleEnglish
EditoreBanca d'Italia
Numero di pagine32
Stato di pubblicazionePubblicato - 2014

Keywords

  • Acquisition determinants
  • Contrarian
  • Cross-border investment
  • Financial crises
  • Sovereign Wealth Funds

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