This document outlines a PhD research proposal examining the characteristics of Sovereign Wealth Fund investments within the framework of the Capital Asset Pricing Model. The proposal includes a literature review on previous research on SWFs, research objectives to examine relationships between risk and return of SWF investments using CAPM, a methodology section outlining data collection and analysis, a timeline with tasks and durations, anticipated outcomes including testing assumptions of CAPM, and potential difficulties of the research.

1. PhD RESEARCH PROPOSAL:
The characteristics of investments of Sovereign Wealth Funds within
framework of Capital Assets Pricing Model
FICOVA Antonia, MSc.
May 25, 2012

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TABLE OF CONTENT
1 INTRODUCTION .............................................................................................................3
2 LITERATURE REVIEW..................................................................................................3
2.1 Rationale ......................................................................................................................4
2.2 Research Objectives......................................................................................................4
2.3 Research Questions.......................................................................................................4
3 METHODOLOGY ............................................................................................................5
3.1 Data Collection Techniques ..........................................................................................6
3.2 Information Sources......................................................................................................6
4 TIMELINE ........................................................................................................................6
5 OUTCOMES......................................................................................................................7
6 POTENTIAL DIFFICULTIES.........................................................................................7
7 REFERENCES..................................................................................................................7

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1 INTRODUCTION
Capital Assets Pricing Model determines the expected rate of return for any
investment to its beta value (Hill, 2010). This equal the risk-free rate of interest, plus the
product of a market risk premium and the investment´s beta coefficient. By practice, the mean
return on equity that provides adequate compensation for holding a share is the value obtained
by incorporating the appropriate equity beta into the CAPM equation.
More to the point, these method, can be used to estimate the expected return on a
security, portfolio, mainly to eliminate unsystematic risk through efficient diversification and
assess the required return for a given level of non-diversifiable, systematic (market) risk.
2 LITERATURE REVIEW
Topic Sovereign wealth funds (“SWFs”) has generated recent attention in the
literature, what I summarize below. Vidhi, Luc (2008) concluded investment strategies and
performance of SWFs, Bortolotti et al., (2009) found investment patterns and performance of
1,216 individual investments of SWF´s between January 1986 and September 2008. Berstein
et al. (2009) examined SWFs’ equity investment strategies and their relationship to
organisational structure, they find that SWFs where politicians are involved are more likely to
invest at home than those where external managers participate. At the same time, SWFs with
external managers tend to invest in industries with lower Price-to-Earnings levels. Bortolotti
et al. (2009) assessed the financial impact of SWF investments on stock markets, they found a
significantly positive mean abnormal return upon SWF acquisitions of equity stakes in
publicly traded companies.
On the other hand, if we look at S-L CAPM (Sharpe, 1964 and Lintner 1965)
assumptions, that is assumed as follows: First, expected returns on all assets are linearly
related to their betas, and no other variables has marginal elucidatory power. Second the beta
premium is positive, meaning that the expected return on the marginal portfolio exceeds the
expected return on assets whose returns are uncorrelated with the market return. Third
security returns which are uncorrelated with the market have expected returns equal to the
risk-free interest rate and the security risk Premium.
However, diversification is very important especially in risk reduction management
system’ for instance, financial integration and or financing capital, capital allocation. Viewed
in this light, aim of diversification is to maximize potential investment or a quick return of
investment. The Capital Asset Pricing Model has introduced this kind of risk reducing scheme
to revolutionize the theory of investing which focuses on the option of investment.

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2.1 Rationale
First, I would like to continue in this subject due to fact that I have written diploma
thesis at this context. Second, I want to examine and develop this very interesting and actual
subject. Third, I have passion for finance. As a result from all of these factors the research
will extrapolate findings in succession research.
2.2 Research Objectives
The focus of these research will be on the pricing of equity and thus the cost capital in
countries that set up SWF´s, especially Asia and Gulf Council Countries, using both the
unconditional the conditional CAPM.
I want to examine through CAPM, if exist positive relationship between betas and
returns. A conditional rather than an unconditional relationship between betas and returns
exists. Beta is a useful measure for investors and portfolio managers when making investment
decisions as the tests for the conditional domestic CAPM show. The objectives of research
I formulated as follows:
 To make a complete report on SWF´s and their investments, that forms the basis for
this dissertation. In order to substantiate the claim put forward under the Sharpe
Lintner Capital Assets Pricing Model and investigate its arguments, the study will
make a review of all available literature.
 To present a comprehensive and critical analysis according to CAPM of observed
investments of Sovereign Wealth Funds and present arguments that will predict the
equilibrium price of their assets.
 To analyze risk and its resultant impact on the excess return, active return, P/E of
their investments.
 To arrive at a conclusion that all investors agree on beta and expected return of any
asset. Nevertheless, investors will bid its current price up or down, adjusting that
expected return so that will be satisfies formula of CAPM. In other words, the
relationship between investment´s systematic risk and its expected return.
2.3 Research Questions
The proposed research will contribute at both the theoretical and empirical levels to
the enhanced understanding of the linkages between following questions:
 What influences the profitability of SWF's? (their strategy and development?)
 What drives the key differences in sovereign fund performance?

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 What is the yield achieved on the day of SWF investment?
 What is industry P/E ratio? (target company´s industry home and outside)
 Can governance structures help to explain the differences in investments across
SWFs?
 How SWF´s investments impact target firm perfomance by investigating the post
acquisition operating performance of target using.
 To what extent, are SWFs accountable for perpetuating the so called saving glut and
contributing to global imbalances?
3 METHODOLOGY
Research is defined by Saunders as: ‘the systematic collection and interpretation of
information with a clear purpose, to find things out.’ (Saunders et al., 2003). The Research
may follow a ‘Deductive Approach’ by testing the theoretical propositions with the adoption
of suitable testing methods or an ‘Inductive Approach’ by collecting relevant empirical data
and evolving the necessary theories based on the data collected.
Data sources can be described as the carriers of data (information). There are to types
of data sources (Ghauri et al., 1995)
1. Primary data (field) is collected specifically for the research project. This will be in
form observations and interviews.
2. Secondary data (desk) is collected by others. These include academic and non-
academic sources.
My research methodology will be focus on two main objectives: First,
comprehensiveness of research and second accuracy of information. To ensure
comprehensiveness, I will survey multiple sources, primarily relying on established business
and financial databases but employing also press-releases, published news, fund annual
reports and many other data sources, as we mentioned earlier in introduction. To ensure
accuracy, I will follow a strict process for capturing deal information and I will establish a
clear hierarchy of sources, based on my best estimate of reliability.
The methods that will be deployed in this research are qualitative and quantitative
analysis, comparative research, that requires active intervention by the researcher, and it is
necesary for exclusive answers of asked questions. I will also use analytic, statistical methods,
regression analysis. Testing hypothesis I will examine through The ‘Student’ t-test, Chi-test,

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method of least squares MLS, analysis of variance ANOVA, neoclassical asset pricing
models.
3.1 Data Collection Techniques
I will use available ordinary acquisitions, venture capital and private equity of SWF´s.
Common stocks will be contained into portfolios based on size, book-to-market, and
momentum.
The returns on the market index in each country that set up SWF will be used as the
proxy for the returns on the market portfolio in country, while the short term Treasury bill rate
of the country will be used as the proxy for the risk free return. For countries, where Treasury
bill rate will be not available, the discount rate will be used instead. The returns on the
Morgan Stanley world index will be used as the returns on the world market portfolio.
3.2 Information Sources
The following range of information sources will be consulted: printed and online
Journals related to the subject, Online Gateways and Databases (e.g. Dealogic´s M&A
Analytics, Security Data Company´s Platinum, Thomson One Banker, MSCI, SDC Global
New Issues database, the Zephyr M&A database, Zawya), stock exchanges, includes: NYSE,
AMEX, and NASDAQ academic worknig papers, SWF´s websites, annual reports of the
funds and other reliable and authentic sources will be used to collect secondary data and
information.
4 TIMELINE
Activity Words Duration (Months)
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Full proposal 7000 3 Months
Literature review 20,000 6 months
Methodology 15,000 6 months
Data gathering 12 months (overlapping with
methodology)
Data analysis 20,000 8 months
Conclusion and implications 15,000 4 months
Introduction 5,000 2 months
Amendments and revisions 2 months
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Total (excl. proposal) 75,000 (approx. 190 pages) 36 months (3 years)

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5 OUTCOMES
The intended final outcomes of the research will be: results of linearity between risk
and expected return which is assumed and predicted by the CAPM. On the other hand, testing
structural diferrences related to beta will be lead to the conclusion that there will be
statistically significant shift of returns of SWF´s investments from Europe and USA to the
Japan and other emerging countries..
6 POTENTIAL DIFFICULTIES
The researcher might face various difficulties during the research regarding the
authenticity of sources, reliability and validity of collected information, completing the
research in limited time and cost.
7 REFERENCES
Bernstein, S. - Lerner, J. - Schoar, A. (2009), "The Investment Strategies of Sovereign
Wealth Funds", Fondazione Eni Enrico Mattei, No. 25: 55
Bortolotti, B. et al., (2009), "Sovereign wealth fund investment patterns and performance“,
Ghauri, P., Gronhaug K and Kristianslund I., (1995), “Research methods in business
studies – a practical guide”, Hempstead, Prentice Hall
Hill, R.A. (2010), “The Capital Asset Pricing Model“, Hill&Ventus Publihing ApS, ISBN
978-87-7681-712-1, p.57
Lintner, J., (1965), “The valuation of risk assets and selection of risky investments in stock
portfolios and capital budgets“, Review of Economics and Statistics, 47, 13-37.
Saunders, M., Lewis, P. and Thornhill, A. (2003), “Research Methods for business students”
3rd ed., Harlow, Essex, FT Prentice Hall
Sharpe, W.F., (1964), “Capital Asset Prices: A Theory of Market Equilibrium under
Conditions of Risk“, Journal of Finance 19, 425-442.
Vidhi, Ch. -, Luc L. A., (2008), "Sovereign Wealth Funds: Their Investment Strategies and
Performance“, CEPR Discussion Paper No. DP6959.
Volume: 1364926, Issue: 405