Tallahassee, Fla. – Stabilizing, or destabilizing? Good or bad? Many have debated the positives and negatives of Sovereign Wealth Fund (SWF) investments, but none have shed light on the fundamental question: Do they help or hurt?

Until now.

Researchers at the Florida State University College of Business have unearthed evidence that suggests these foreign investments are destabilizing to financial markets, confirming media speculation that SWF could do more damage than good.

"Our research, which is based on recent empirical techniques to establish statistical relationships and even suggest causality, finds that risk and return decrease after SWF investment," said Dr. Bong-Soo Lee, the Patty Hill Smith Eminent Scholar Chair in Finance and lead author of the research findings. "Furthermore, we find that risk is not sufficiently reduced to offset the change in return, at both the firm and market levels, which suggests that the SWF investment is destabilizing."

"'Sleeping with the Enemy' or 'An Ounce of Prevention': Sovereign Wealth Fund Investments and Market Destabilization," the paper authored by Lee, Dr. April Knill and a graduate student in the College of Business, will be presented at the Darden International Finance Conference in March 2009.

As the current economic crisis continues to rage throughout the world, market destabilization continues to be discussed:

• President Barack Obama, during his presidential campaign, expressed concern that SWFs are motivated "by more than just market considerations." (Reuters.com, Feb. 7, 2008)
• A study done by the Government Accountability Office found that six out of 10 countries surveyed expressed discomfort with SWFs.
• The Security and International Trade and Finance Committee, led by Sen. Evan Bayh, D-Ind., will convene to debate the SWFs potential for destabilization/national security risks. http://bayh.senate.gov/news/in_the_news/article/?id=30ADE5BC-1AC0-4421-8DC2-F01504001E58

Although the media has covered the SWF investments issue extensively, the researchers found no connection between the destabilization of the investments and the coverage.

"After reviewing all articles written about SWF investments, in both academic and popular press, we gathered a data set of SWF transactions. We analyzed these transactions for performance of the firms and markets involved," said Lee. "We found no evidence to suggest that media coverage caused any of the destabilization seen with these SWF investments."

About the FSU College of Business
Founded in 1950, the FSU College of Business is one of the nation's youngest business schools, yet it has become one of the 10 largest in the United States. It is the second largest academic unit on FSU's campus with an enrollment of 6,107 students and boasts a distinguished full-time faculty of 114, including one Francis Eppes professor, eight eminent scholar chairs, three university-named professorships and 29 endowed professorships. For more information, please visit www.cob.fsu.edu.

For more information about the College of Business, please go to www.cob.fsu.edu.