Valuation Efficiency of Secondary Markets for Formerly Illiquid Assets: The Case of German KG Ship Funds

53 Pages Posted: 31 Aug 2016

See all articles by Andre Kuester Simic

Andre Kuester Simic

Hamburg School of Business Administration

Philipp Lauenstein

Hamburg School of Business Administration

Stefan Prigge

Hamburg School of Business Administration

Date Written: August 30, 2016

Abstract

Until the outbreak of the most recent shipping crisis in late 2008, German KG ship funds had been a prominent vehicle for investing in, and financing of, global shipping operations. Given that KG shares are not designed to be traded, investors are expected to require higher returns as compensation for illiquidity. Since the early 2000s, secondary market platforms for trading of shares in ship funds emerged. If investors could sell their shares at prices reflecting the fundamentals of their asset, lower returns would be demand. Making use of a novel methodological approach, 341 transactions of container ship funds executed from 2007 through 2012 are analyzed. The results reveal a surprisingly high fundamental-valuation efficiency: The identified pricing-relevant variables explain about 86% of the variations in the secondary market valuations of the ship funds. However, it is documented that shares in ship funds trade at discount relative to fundamental asset values.

Keywords: ship finance; KG funds; secondary markets; informational efficiency; market microstructure

JEL Classification: D47, G12, G14, G31

Suggested Citation

Kuester Simic, Andre and Lauenstein, Philipp and Prigge, Stefan, Valuation Efficiency of Secondary Markets for Formerly Illiquid Assets: The Case of German KG Ship Funds (August 30, 2016). Multinational Finance Journal, Vol. 20, No. 2, p. 127-179, 2016, Available at SSRN: https://ssrn.com/abstract=2832084

Andre Kuester Simic

Hamburg School of Business Administration ( email )

Alter Wall 38
Hamburg, 20457
Germany

Philipp Lauenstein (Contact Author)

Hamburg School of Business Administration ( email )

Alter Wall 38
Hamburg, 20457
Germany

Stefan Prigge

Hamburg School of Business Administration ( email )

Alter Wall 38
Hamburg, 20457
Germany

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