The development and performance of European private equity..

In this paper we analyse the development of the European private equity sector: how it has grown, the distribution of investments, and the returns. From being a niche sector only a few years ago, the private equity sector within Europe has emerged from the shadows and is becoming increasingly the focus of attention. In part this is due to the sheer amount of capital being raised by the private equity sector.

Cointegration and Unit Roots.

This paper provides an updated survey of a burgeoning literature on testing, estimation and model specification in the presence of integrated variables. Integrated variables are a specific class of non-stationary variables which seem to characterise faithfully the properties of many macroeconomic time series. The analysis of cointegration develops out of the existence of unit roots and offers a generic route to test the validity of the equilibrium predictions of economic theories. Special emphasis is put on the empirical researcher's point of view.Unit root; Cointegration; Trends; Error correction mechanisms;

A response to Hackethal and Schmidt (2003) "Financing patterns: measurement concepts and empirical results"

Hackethal and Schmidt (2003) criticize a large body of literature on the financing of corporate sectors in different countries that questions some of the distinctions conventionally drawn between financial systems. Their criticism is directed against the use of net flows of finance and they propose alternative measures based on gross flows which they claim re-establish conventional distinctions. This paper argues that their criticism is invalid and that their alternative measures are misleading. There are real issues raised by the use of aggregate data but they are not the ones discussed in Hackethal and Schmidt’s paper. JEL Classification: G3

Global Integration in Primary Equity Markets: The Role of U.S. Banks and U.S. Investors

We examine the costs and benefits of the global integration of primary equity markets associated with the parallel diffusion of U.S. underwriting methods. We analyze both direct and indirect costs (associated with underpricing) using a unique dataset of 2,132 IPOs by non-U.S. issuers from 65 countries in 1992-1999. Bookbuilding typically costs twice as much as a fixed-price offer, but on its own, does not lead to lower underpricing. However, when conducted by U.S. banks and/or targeted at U.S. investors, bookbuilding can reduce underpricing significantly, relative to fixed-price offerings or bookbuilding efforts conducted by ‘local’ banks. These results are obtained after allowing for the endogeneity and interdependence of issuers’ choices. For the great majority of issuers, the gains associated with lower underpricing outweighed the additional costs associated with hiring U.S. banks or marketing in the U.S. This suggests a quality/price trade-off contrasting with the findings of Chen and Ritter [Journal of Finance 55, 2000], particularly since non-U.S. issuers raising US$20m-80m also typically pay a 7% spread when U.S. banks and investors are involved

Research unbundling and market liquidity: evidence from MiFID II

The second Markets in Financial Instruments Directive (MiFID II) mandated the unbundling of payments for research and trading. This research explores whether the impact of MiFID II differs between large and small firms in terms of analyst coverage and stock liquidity. Focusing on the UK stock markets we find a significant drop in analyst coverage on the Main Market, which leads to a deterioration in market liquidity. In contrast, the requirement of AIM firms to retain a Nominated Adviser, who often provides research coverage, has mitigated the impact of MiFID II

Best Buys and Own Brands: Investment Platforms’ Recommendations of Mutual Funds

Individual investors increasingly trade and hold mutual funds via investment platforms, many of which make their own fund recommendations. Using data from leading platforms in the U.K., we examine the drivers, impact, and performance of these recommendations. Platforms’ recommendations favor funds with a low cost to investors, but also favor affiliated funds and those which share more of their commission revenues with platforms. Recommendations affect flows considerably, although investors somewhat discount recommendations of affiliated funds. Recommended funds outperform non-recommended funds overall, but recommended affiliated funds do not

Investment Consultants’ Claims About Their Own Performance: What Lies Beneath?

Investment consultants market their services by claiming that their fund manager recommendations add significant value. Using detailed data from the leading investment consultants we find no such evidence. A forensic analysis of consultants’ disclosures reveals a number of practices that explain their claims: comparisons to benchmarks rather than to peers, inclusion of simulated and backfilled returns, use of rating survivorship conditions, and unexplained exclusions of products from the analysis. We find that recommended products have similar return and risk characteristics to products that are not recommended, but deviate less from their benchmarks