Nonlinearity and smoothing in venture capital performance data |
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Authors: | Michael McKenzie Stephen Satchell Warapong Wongwachara |
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Affiliation: | 1. The University of Sydney Business School, Australia;2. Centre for Financial Analysis and Policy, University of Cambridge, UK;3. Trinity College, University of Cambridge, UK;4. TMB Analytics, TMB Bank Plc., Thailand |
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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. |
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