Nonlinearity and smoothing in venture capital performance data

Michael McKenzie, Stephen Satchell and Warapong Wongwachara

Journal of Empirical Finance, 2012, vol. 19, issue 5, 782-795

Abstract: Performance indices for illiquid investments are known to suffer from returns smoothing, and the purpose of this paper is to investigate the presence and nature of such smoothing in the context of venture capital. We find that while the standard techniques may or may not indicate the presence of smoothing, significant evidence of smoothing exists when a nonlinear regime-dependent model is specified. Further, the model suggests the presence of regime-specific responsiveness of venture capital returns whereby different weights are placed on newly arrived information in different regimes.

Keywords: Regime switching; Threshold autoregressive model; Venture capital returns (search for similar items in EconPapers)
JEL-codes: C22 G24 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:19:y:2012:i:5:p:782-795

DOI: 10.1016/j.jempfin.2012.08.004

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