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The impact of Sovereign Wealth Funds on stock performance.: A study of the materialization of abnormal returns.
Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Business Administration.
Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Business Administration.
2017 (English)Independent thesis Basic level (professional degree), 20 credits / 30 HE creditsStudent thesis
Abstract [en]

Since 2006, the number of Sovereign Wealth Funds (SWF) have accelerated alongside their total value which increased by about 250 % and they have attained a position as influential market players. SWF are a classification of investment funds which are state owned entities who mainly attain their surplus from the petroleum industry and non- commodity sources and primarily place their investments abroad.

SWF is a “modern” fund classification on which a limited amount of research has been conducted. Still, previous studies such as the ones conducted by Dewenter et al. (2010) and Kotter and Lel (2011) might lend support to this research and its pursue to study the effect of SWFs financial actions and to fill the identified research gap. A currently non- existent investment strategy being the main identified research gap. Also, the growth of SWFs leads to this research not only functioning as an update, but as a study that will contribute to the existing knowledge of SWF. The research question is the following:

What is the short-term effect of an announcement of a Sovereign Wealth Fund’s investment on the stock price behavior of the target firm?

The purpose is to clarify the difference between regular funds and SWF and to explore the effect SWFs announcements have on the behavior of targets’ stock price. This have been done by ways of a deductive and quantitative research method. An event study has been performed and regression analyses allowed for the usefulness of the findings from the event study to be built upon.

A theoretical framework has been created to support both the performance and analysis of the study. Its skeleton consists of theories concerning abnormal return (Campbell et al., 1997), efficient market hypothesis (Brealey et al., 2014) and behavioral finance (Brunnermeier, 2001).

The study provides a theoretical contribution by providing new knowledge of SWFs and their financial actions. A practical contribution is to produce an investment strategy that can be profitable for retail investors.

The event study allowed for the finding of a positive short term abnormal return stemming from the publication of SWFs announcement to purchase shares in a target company. It is possible for, mainly, retail investors to make use of this as an investment strategy, expecting a return exceeding index with 0,50 % when imitating the financial actions of SWFs. By allowing the findings of the reduced regression analysis to strengthen the model, investors might increase their return. 

Place, publisher, year, edition, pages
2017. , 76 p.
Keyword [en]
Sovereign Wealth Funds, abnormal return, semi-strong market efficiency, herd instinct, equities, retail investors, investment strategy.
National Category
Business Administration
Identifiers
URN: urn:nbn:se:umu:diva-137084OAI: oai:DiVA.org:umu-137084DiVA: diva2:1115035
Educational program
Study Programme in Business Administration and Economics
Presentation
2017-05-30, S302, Biblioteksgränd 6, Umeå, 08:00 (English)
Supervisors
Examiners
Available from: 2017-06-26 Created: 2017-06-26 Last updated: 2017-06-26Bibliographically approved

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CiteExportLink to record
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Citation style
  • apa
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