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Nonlinearity and smoothing in venture capital performance data

Author

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  • McKenzie, Michael
  • Satchell, Stephen
  • Wongwachara, Warapong

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.

Suggested Citation

  • McKenzie, Michael & Satchell, Stephen & Wongwachara, Warapong, 2012. "Nonlinearity and smoothing in venture capital performance data," Journal of Empirical Finance, Elsevier, vol. 19(5), pages 782-795.
    • Handle: RePEc:eee:empfin:v:19:y:2012:i:5:p:782-795
    DOI: 10.1016/j.jempfin.2012.08.004
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    Cited by:

    1. McKenzie, Michael & Satchell, Stephen & Wongwachara, Warapong, 2014. "Converting true returns into reported returns: A general theory of linear smoothing and anti-smoothing," Journal of Empirical Finance, Elsevier, vol. 28(C), pages 215-229.
    2. Loic Mar'echal & Alain Mermoud & Dimitri Percia David & Mathias Humbert, 2024. "Measuring the performance of investments in information security startups: An empirical analysis by cybersecurity sectors using Crunchbase data," Papers 2402.04765, arXiv.org, revised Feb 2024.

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    More about this item

    Keywords

    Regime switching; Threshold autoregressive model; Venture capital returns;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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