Sovereign wealth fund investment and the return-to-risk performance of target firms

Knill, April M.; Lee, Bong Soo; Mauck, Nathan

doi:10.1016/j.jfi.2011.10.001

Cited by 88 publications

(56 citation statements)

References 66 publications

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“…As SWFs are under the full control of governments, their target firms are at least partially governmentowned as well (Knill, Lee & Mauck 2012). This strand of literature suggests that governments usually have a negative impact on firm financial performance, which improves with privatization (Estrin, Hanousek, Kočenda & "e-Finanse" 2017, vol.…”

Section: Background and Hypothesismentioning

confidence: 99%

The Color of Government Money. Do Investors Differently Value the Investment of Sovereign Wealth Funds?

Urban

2017

E-Finanse

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The article aims at pointing out the differences in market reactions regarding the announcement of an investment of selected Sovereign Wealth Funds in companies listed on the London Stock Exchange. The research sample consists of 796 market transactions made by four selected Sovereign Wealth Funds. The author employed event study methodology to calculate the average abnormal returns and cumulative abnormal returns for each fund in subsamples. The empirical findings suggest that investors react differently to the information about a fund's investment. To the best of the author's knowledge, the literature does not provide any answer as to how the market reacts to information disclosure of individual funds. Therefore, this paper bridges the gap in the literature within this field.

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Section: Background and Hypothesismentioning

confidence: 99%

The Color of Government Money. Do Investors Differently Value the Investment of Sovereign Wealth Funds?

Urban

2017

E-Finanse

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“…In terms of preferences for target characteristics, the effects on target performance of SWFs are similar to passive institutional investors. Knill et al (2012) have investigated the relationship between Sovereign Wealth Funds' investment and the return-torisk performance of target firms. They have found evidence that target firms' raw returns declined after the investment.…”

Section: Literature Reviewmentioning

confidence: 99%

The investment attractiveness of companies listed on the Warsaw Stock Exchange to Sovereign Wealth Funds

Urban

2016

Acta Oeconomica

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The aim of this study is to shed some light on the factors determining the investment decisions of Sovereign Wealth Funds. Using the financial data from companies listed on the Warsaw Stock Exchange, the author employs a logit model to analyse the probability that firms are targeted for investment by the Norwegian Sovereign Wealth Fund. These findings suggest that not only the growth of earnings per share increases the probability of such investment, but that also a company whose shares have been bought by the Government Pension Fund Global has, on average, a higher level of earnings per share than companies not targeted by the Fund. This study contributes to a deeper understanding of the investment activities of the world’s largest Sovereign Wealth Fund.

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“…Even though 40 percent of the CNSSF assets are invested in risky assets, Bortolotti et al (2015) assume the CNSSF is a pension fund and excludes it from the sovereign wealth funds (SWFs) list. However, the CNSSF does not recognise any liabilities to beneficiaries, leading Knill et al (2012) to treat the CNSSF as a SWF.…”

Section: General Background and Motivation For Studying The Cnssfmentioning

confidence: 99%

“…Further, contrasting the existing literature, that tests if state-sponsored investors can earn abnormal returns (see, Knill et al, 2012;Kotter and Lel, 2011;Bortolotti et al, 2015), we offer new analysis that explores if a state sponsored investor can play a 'last resort' role in the stock markets, analogous to role that central banks play in banking systems. We also check the relation between liquidity provision behavior and information quality.…”

Section: Paper 1: Contributionmentioning

confidence: 99%

“…Its investment strategies are not limited to wealth maximization but are placed more on safety-first, value-oriented and long-term investment (Impavido et al, 2009). Specifically, Knill et al, (2012) argue that the government creates a monopoly-type environment to safely protect its assets at home. Hence, the special structure and unique role of the CNSSF in the Chinese market allows us to reliably assess how the CNSSF policy information advantage can be impounded into the asset prices (Grossman and Stiglitz, 1980).…”

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confidence: 99%

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Three essays on the financial analysis of the political actions of the Chinese National Social Security Fund

Li¹

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In this thesis, using a finance lens, we investigate various aspects of political actions of the Chinese National Social Security Fund (CNSSF). The thesis comprises three empirical papers. In the first essay, we analyze the trading behavior of the CNSSF that operates in a highly political environment. We show that the CNSSF adopts a rebalancing strategy that maintains both portfolio liquidity and growth opportunities. Further, we find direct and indirect evidence that the CNSSF actively intervenes in the stock market by providing liquidity to mutual funds in distress. This liquidity provision can be primarily explained by public information quality. Most notably, CNSSF can profit by assisting distressed mutual funds, especially if such liquidity provision relates to private information. In addition, this bailout-like behavior is not speculative and can positively improve the performance of the distressed mutual funds.In essay 2, we propose a new measure of the policy information advantage available to the CNSSF. Specifically, we assess the impact of this policy-linked "information advantage" on stock performance. Our results show that in the short run, there is a positive and significant information advantage-stock performance linkage.Moreover, our findings support the view that CNSSF promotes the absorption of inside information into prices. In contrast, in the long run, the policy information advantage of the CNSSF negatively decreases the firm operation performance. Finally, we document that there is an information network spillover of the information advantage across the Chinese mutual fund industry, which also affects mutual fund performance.In the third essay, we propose a smooth non-parametric estimation to explore the safety-first portfolio optimization problem. As an empirical application, we simulate optimal portfolios and display return-risk characteristics using the CNSSF strategic stocks. We obtain a non-parametric estimation calculation formula for loss (truncated) probability using the kernel estimator of the portfolio returns' cumulative distribution function, and embed it into two types of safety-first portfolio selection models. We numerically and empirically test our non-parametric method to demonstrate its accuracy and efficiency. Cross-validation results show that our non-parametric kernel estimation method outperforms the empirical distribution method.

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Sovereign wealth fund investment and the return-to-risk performance of target firms

Cited by 88 publications

References 66 publications

The Color of Government Money. Do Investors Differently Value the Investment of Sovereign Wealth Funds?

The Color of Government Money. Do Investors Differently Value the Investment of Sovereign Wealth Funds?

The investment attractiveness of companies listed on the Warsaw Stock Exchange to Sovereign Wealth Funds

Three essays on the financial analysis of the political actions of the Chinese National Social Security Fund

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