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Shanghai, Dubai, Mumbai or Goodbye?

journal contribution
posted on 2023-06-08, 11:46 authored by Mark Perry, Surendranath Jory, Thomas A Hemphill
Starting in 2007, Sovereign Wealth Funds (SWFs) from Asia and the Middle East have invested billions of dollars in major U.S. financial firms. The primary driving force behind their growth is rising commodity prices, in particular oil. Given that SWFs represent a relatively new, cashrich investment group, we studied the public policy concerns with their investments, SWFs mode of entry, and how does the market react to the investment. SWFs lack of transparency with regards to their investment motives and governance structure is cause for concern. While taking full opportunity of depressed security prices as a result of the 2007-2008 financial crisis, they are also being prudent by investing mostly in preferred stocks and fixed-income convertible securities of large U.S. corporations that are followed by many analysts and are highly liquid. Despite investing handsomely in U.S. targets and adopting a hands-off approach toward management; the liquidity crisis continues to perpetuate the decline in SWFtargets’ stock price post-investment. Using an event study parameter approach, we found the short-run market reaction to be statistically insignificant in 11 out of 12 announcements of SWF investments; but in the months following the investment, SWF-targets underperform both the S&P500 and the Dow Jones Financial Services Index Fund.

History

Publication status

  • Published

Journal

Review of Economic and Business Studies

ISSN

1843-763X

Issue

2

Volume

2

Page range

103-124

Department affiliated with

  • Business and Management Publications

Full text available

  • No

Peer reviewed?

  • Yes

Legacy Posted Date

2012-06-14

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