Evaluating the Impact of Sovereign Wealth Fund Investments on US Stock Market
Abstract
This paper analyzes the impact of Sovereign Wealth Funds’ (SWFs) investments on US-listed stocks. An event study methodology was employed using a sample of 627 investments from seven countries. The study uses a 90-day estimation period to develop the CAPM model for target stocks and analyzes average abnormal returns (AARs) and cumulative AARs (CAARs) over a 41-day event window. The findings confirm that SWF investments generate positive abnormal returns, but these effects are short-lived, peaking around the event day and fading within a few days. This suggests that SWF investments act as a short-term catalyst rather than a driver of long-term value, benefiting speculators and short-term investors more than long-term shareholders. Additionally, the study shows that higher transparency levels in SWFs are significantly associated with positive market reactions, likely due to increased investor confidence. In contrast, ownership share does not significantly affect abnormal returns. This study extends the literature by providing new evidence on the short-term market effects of SWF investments during the 2007–2008 financial crisis. The findings provide useful insights for investors and policymakers regarding the market impact of SWF investments and highlight the importance of transparency in enhancing investor confidence.