Publication Date

Spring 5-23-2026

School

School of Business

Major

Business Administration; Business: Economics; Business: Finance

Disciplines

Business | Business Administration, Management, and Operations | Finance and Financial Management | Organizational Behavior and Theory | Other Business | Portfolio and Security Analysis

Abstract

Sovereign Wealth Funds (SWFs) are increasingly influential in emerging markets, yet the behavioral drivers behind their investments remain underexplored. In this paper, an analysis of SWF capital’s impact on economic development and the psychological factors, such as optimism bias and herding, that shape these decisions is examined. Utilizing a mixed-methods comparative study, the research analyzes Saudi Arabia’s Public Investment Fund (PIF) and Singapore’s Temasek Holdings. Event study analysis reveals a divergent impact: the PIF’s high-profile developmental commitment to India generated a positive 5-day Cumulative Abnormal Return of +2.05%, confirming a macro-level “seal of approval” signaling effect. By contrast, Temasek’s commercially oriented stake acquisitions produced an average CAR of −1.24%, consistent with markets pricing these transactions on fundamentals without awarding a sovereign premium. These results support the thesis that behavioral mandate, not asset size, drives emerging market outcomes. Developmental funds generate behavioral distortions that elevate initial market reactions, while commercially disciplined funds suppress the overconfidence premium as the  model predicts. The study concludes that effective sovereign stewardship of emerging economies requires governance structures that constrain the political mandate pressures driving overvaluation.

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