The impact of sovereign wealth funds on global financial markets

If sovereign wealth funds act similarly to private investors and thus allocate foreign assets according to market capitalisation rather than liquidity considerations, official portfolios reduce their “bias” towards the major reserve currencies — the US dollar and the euro. As a result, more capital...

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Bibliographic Details
Published in:Inter economics 2008-11, Vol.43 (6), p.349-358
Main Authors: Beck, Roland, Fidora, Michael
Format: Article
Language:English
Subjects:
American dollar
Capital
Capital movement
Central banks
Cooperation
Economic Policy
Economic theory
Economics
Economics and Finance
European Integration
Foreign investment
Interest rates
International finance
International markets
Internationaler Finanzmarkt
Investments
Kapitalmobilität
Labor Economics
Makroökonomischer Einfluss
Markets
Pension funds
Reserve assets
Securities markets
Social Policy
Sovereign wealth funds
Staatsfonds
Studies
Wealth
Welt
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Description
Summary:If sovereign wealth funds act similarly to private investors and thus allocate foreign assets according to market capitalisation rather than liquidity considerations, official portfolios reduce their “bias” towards the major reserve currencies — the US dollar and the euro. As a result, more capital flows “downhill“ from rich to less wealthy economies. In this scenario, the euro area and the United States would be subject to net capital outflows while Japan and the emerging markets would attract net capital inflows. The potential implications of a rebalancing of international capital flows for stock prices, interest rates and exchange rates remain uncertain, however.
ISSN:0020-5346
1613-964X
DOI:10.1007/s10272-008-0268-5