Ciarlone & Miceli: Escaping Financial Crises? Macro Evidence from Sovereign Wealth Funds' Investment Behavior


The paper investigates the determinants of Sovereign Wealth Funds’ (SWFs) investment activity at macro level, with a special emphasis on the possible reaction to a financial crisis hitting a potential target economy. The analysis relies upon a specifically-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 out that this class of investors prefers to invest in countries characterised by a higher degree of economic development, where financial markets are larger and more liquid, institutions are more effective in terms of protection of legal rights, and are characterized by a more stable macroeconomic environment. Most importantly, and in stark contrast with the existing empirical literature on other relevant institutional investors, SWFs seem to engage in a ‘contrarian’ investment behaviour, i.e. by increasing their acquisitions in countries where crises hit. The above results are shown to be valid if we consider both the likelihood of a country being targeted by SWFs’ investments and the amount SWFs choose to invest in each country. Capital flows stemming from SWFs’ acquisition activity worldwide, therefore, may end up having a stabilizing role on local markets during periods of financial turmoil, protecting the targeted countries from foreign shocks, instead of propagating them globally.


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