Modeling Private Equity: A Combined Time-Series Approach

53 Pages Posted: 6 May 2019

See all articles by Apollon Fragkiskos

Apollon Fragkiskos

Markov Processes International

Olga Krasotkina

Markov Processes International LLC

Harold D Spilker III

University Of Hawaii At Manoa - Shidler College of Business

Russ Wermers

University of Maryland - Robert H. Smith School of Business

Date Written: April 5, 2019

Abstract

We introduce a flexible time-series estimator that improves upon existing approaches at recovering factor exposures of buyout funds. Ours is the first that aims to recover individual systematic fund returns while remaining agnostic to the underlying return process. Under varying auto-regressive and moving-average simulations, we recover systematic exposures with less bias and variance than competing estimators. We apply our model to a newly available commercial data set from PitchBook and find alphas that are higher than those reported in recent literature. Furthermore, we find substantial time-series model fit improvement from our optimized estimator. The large dispersion of our estimated alpha and beta coefficients highlight the benefits of fund specific analysis compared to cross-sectional estimations.

Keywords: private equity, factor modeling, long horizons, overlapping, lagged, t-stats, supervised learning

JEL Classification: C01, C22

Suggested Citation

Fragkiskos, Apollon and Krasotkina, Olga and Spilker III, Harold D and Wermers, Russell R., Modeling Private Equity: A Combined Time-Series Approach (April 5, 2019). Available at SSRN: https://ssrn.com/abstract=3367079 or http://dx.doi.org/10.2139/ssrn.3367079

Apollon Fragkiskos (Contact Author)

Markov Processes International ( email )

465 Springfield Avenue
Suite 411
Summit, NJ Union county 07094
United States

Olga Krasotkina

Markov Processes International LLC ( email )

25 Maple Street
Summit, NJ 07901
United States

Harold D Spilker III

University Of Hawaii At Manoa - Shidler College of Business ( email )

United States
8089568738 (Phone)

Russell R. Wermers

University of Maryland - Robert H. Smith School of Business ( email )

Department of Finance
College Park, MD 20742-1815
United States
301-405-0572 (Phone)
301-405-0359 (Fax)

HOME PAGE: http://www.rhsmith.umd.edu/finance/rwermers/

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