Predicting Returns of Listed Private Equity
20 Pages Posted: 18 Oct 2024 Last revised: 10 Dec 2024
Date Written: September 13, 2024
Abstract
We examine the predictive power of the net asset value (NAV)/price ratio for the LPX50 index, a key benchmark in the field of listed private equity, using monthly data from 2002 to 2024. Using a risk factor model, we demonstrate the index's significant exposure to small-cap and value stocks. Autocorrelation tests indicate market inefficiencies and suggest potential predictability of future returns. Both in-sample and out-of-sample analyses confirm the NAV/price ratio as a significant predictor of future returns, particularly over longer investment horizons and when excluding periods of financial instability. When the index's NAV is relatively high compared to its market price, investors can increase their exposure to value risk and potentially achieve excess returns.
Keywords: Listed Private Equity, Return Prediction, Factor Investing
JEL Classification: G11, G12, G17
Suggested Citation: Suggested Citation