Nonlinearity and Smoothing in Venture Capital Performance Data

Posted: 25 May 2012

See all articles by Michael D. McKenzie

Michael D. McKenzie

The University of Sydney - Discipline of Finance; University of Cambridge - Cambridge Endowment for Research in Finance (CERF); Financial Research Network (FIRN)

Stephen E. Satchell

University of Cambridge - Faculty of Economics and Politics

Warapong Wongwachara

TMB Analytics

Date Written: May 25, 2012

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

JEL Classification: C22, G24

Suggested Citation

McKenzie, Michael David and Satchell, Stephen E. and Wongwachara, Warapong, Nonlinearity and Smoothing in Venture Capital Performance Data (May 25, 2012). Journal of Empirical Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2066193

Michael David McKenzie

The University of Sydney - Discipline of Finance ( email )

Level 2 9 Castlereagh Street
Sydney, NSW 2000
Australia
+61 2 9114 0578 (Phone)
+61 2 9351 6461 (Fax)

University of Cambridge - Cambridge Endowment for Research in Finance (CERF) ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Stephen E. Satchell

University of Cambridge - Faculty of Economics and Politics ( email )

Austin Robinson Building
Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom
44 (0)1223 335213 (Phone)
44 (0)1223 335475 (Fax)

HOME PAGE: http://www.econ.cam.ac.uk/faculty/satchell/index.h

Warapong Wongwachara (Contact Author)

TMB Analytics ( email )

3000 Phahonyothin Rd.
Chomphon
Chatuchak, Bangkok 10900
Thailand
+66 (0) 2 299 2615 (Phone)

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