Short and Long-Term Interactions Between Venture Capital Returns and the Macroeconomy: Evidence for the United States
University of St. Gallen
WHU - Otto Beisheim School of Management
September 1, 2010
Review of Quantitative Finance and Accounting, Vol. 38, No. 3, 391-410.
Starting from a static long-run equilibrium model, we empirically model the influence of macroeconomic and financial variables on the performance of risk capital in the U.S. In contrast to previous studies, we analyze the effect of several factors simultaneously within the framework of a vector error correction model (VECM). This allows us to study short- and long-term interactions to overcome the problem of endogeneity, and to discover causal mechanisms. The results show that the value of venture capital investments is positively related to industrial production, the exit channel Nasdaq, and the long-term interest rate, but negatively related to the short-term interest rate. According to the short-term dynamics, VEC Granger causality confirms that only industrial production influences venture capital performance, while venture capital returns Granger causes Nasdaq performance.
Keywords: Venture capital returns, macroeconomy, cointegration test, VECM, Granger causality, variance decomposition
JEL Classification: C32, F4, G24Accepted Paper Series
Date posted: March 24, 2008 ; Last revised: October 12, 2013
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