Do Sovereign Wealth Funds Herd in Equity Markets?

With $4.4 trillion of assets at end-2010, feared and courted by governments all over the world, characterized by low levels of transparency and often accused of hidden motivations, sovereign wealth funds (SWFs) are today among the most controversial players in global financial markets. SWFs are government owned financial vehicles deriving their wealth from oil related or other fiscal or balance of payment surpluses. Based on a newly built database of 2740 SWF deals spanning 1990-2010 and involving 29 out of the 52 existing SWFs, this paper assesses whether SWFs herd in equity markets across industries. The results, a negative measure of herding equal to -5%, imply that SWFs do not herd across industries. Indeed they tend to follow a fairly similar diversifying investment strategy across industries in a given period. This homogeneity in their trading patterns across industries is more pronounced than for other types of investors.