The equity premium puzzle: High required equity premium, undervaluation and self fulfilling prophecy

We argue that the equity premium puzzle may be explained by the fact that most market participants (equity investors, investment banks, analysts, companies¿) do not use standard theory (such as a standard representative consumer asset pricing model) for determining their Required Equity Premium, but rather, they use historical data and advices from textbooks and finance professors. Consequently, ex-ante equity premia have been high, market prices have been consistently undervalued, and the ex-post risk premia has been also high. Professors use in class and in their textbooks high equity premia (average around 6%, range from 3 to 10%), and investors use higher equity premia for valuing companies (average around 6%). The overall result is that equity prices have been, on average, undervalued in the last decades and, consequently, the measured ex-post equity premium is also high. As most investors use historical data and textbook prescriptions to estimate the required and the expected equity premium, the undervaluation and the high ex-post risk premium are self fulfilling prophecies.equity premium puzzle; required equity premium; historical equity premium;

The European venture capital and private equity country attractiveness index(es)

We calculate composite indexes to compare the attractiveness of 25 European countries for institutional investments into the Venture Capital and Private Equity asset class. To achieve this we use 42 different criteria and propose an aggregation structure that allows for benchmarking on more granular levels. The United Kingdom leads our ranking, followed by Ireland, Denmark, Sweden and Norway. While Germany is slightly above the average European attractiveness level, the scores for France, Italy, Spain, and Greece are rather disappointing. Our analyses reveal that while the United Kingdom is similar to the other European countries with respect to many criteria, there are two major differences which ultimately affect its attractiveness: its investor protection and corporate governance rules; and the size and liquidity of its capital market. The state of the capital market is likewise a proxy for the professionalism of the financial community, deal flow and exit opportunities. We determine a reasonable correlation between our attractiveness index scores and actual Venture Capital and Private Equity fundraising activities and prove the robustness of our calculations. Our findings across all the European countries suggest that while investor protection and capital markets are in fact very important determinants of attractiveness, there are numerous other criteria to consider.Venture Capital; Private Equity; Alternative Asset; International Asset Allocation;

The attractiveness of central eastern European countries for venture capital and private equity investors

We address the attractiveness of Central Eastern European countries for VC/PE investors by the construction of a composite index. For the index composition we refer to the results of numerous prior research papers that investigate relevant parameters determining entrepreneurial activity and/or the engagements of institutional investors. We aggregate the index via five different methods and receive country rankings that vary only slightly, signaling a robust index calculation. We clearly identify six tier groups of attractiveness for all of our sample countries. We compare our index with the actual fundraising activities in the particular countries and reveal a reasonable correlation of both figures. The results highlight the strengths and weaknesses of the particular economies and provide guidelines for political improvements and institutional investors' country allocations.Venture capital; Private equity; Central Eastern Europe; Economic transition;

Limited partners' perceptions of the Central Eastern European venture capital and private equity market

Growth expectations and institutional settings in Central Eastern Europe are assumed to be favorable for the establishment of a vibrant Venture Capital and Private Equity market. Despite this, there is a lack of risk capital. We examine the obstacles to institutional investments in the region through a questionnaire addressed to (potential) Limited Partners world-wide. The respondents provide information about their perceptions of the region. The protection of property rights is the dominant concern, followed by social criteria, such as the belief in the management quality of local people, and the lacking size and liquidity of the Central Eastern European capital markets. However, Limited Partners regard the growth expectations as attractive, and those with exposure in Central Eastern Europe are satisfied with the historical risk and return ratio, they have a good knowledge of the region, are attracted by other emerging regions, and they appreciate the region's entrepreneurial opportunities and the local General Partners. Overall, the region is ranked very favorable compared to other emerging regions, and especially with respect to its economic and entrepreneurial activity.Venture Capital; Private Equity; International Asset Allocation; Institutional Investors;

Allocation determinants of institutional investments in venture capital and private equity limited partnerships in Central Eastern Europe

Growth expectations and institutional settings are favorable in CEE to establish a vibrant VC/PE market. However, there is lacking supply of risk capital. We address the obstacles for institutional investments in the region via a questionnaire addressed to (potential) Limited Partners worldwide. The respondents provide information about their criteria for international asset allocation. The protection of property rights is the dominant concern, followed by the need to find local quality General Partners and by the management quality and skills of local entrepreneurs. Further, the expected deal flow plays an important role for the allocation process, while the investors fear bribing and corruption. CEE is regarded as very attractive, especially the economic and entrepreneurial activity. However, the investors are not comfortable there with the protection of their claims.Venture capital; Private equity; International asset allocation; Institutional investors;

Do business angels alter the risk-return equation in early stage investments? Business angels as seen by venture capitalists in the German speaking countries

Venture capitalists in German-speaking countries do not value the contribution of business angels in co-invested deals. Business angels do not reduce the risk perceived by venture capitalists in early-stage deals, even if the business angels have what venture capitalists regard as an ideal profile. Venture capitalists also refute that deals with business angels typically generate higher internal rates of return than deals without business angels.Venture capital; Business Angels;

International allocation determinants of institutional investments in venture capital and private equity limited partnerships

We examine the determinants of institutional investors when deciding on international capital allocation in Venture Capital and Private Equity Limited Partnerships; this is done through a questionnaire addressed to (potential) Limited Partners world-wide. The respondents provide information about their criteria for international asset allocation. The protection of property rights is the dominant concern, followed by the need to find local quality General Partners, and the quality of management and skills of local entrepreneurs. Furthermore, the expected deal flow plays an important role in the allocation process, while investors fear bribery and corruption. Public funding and subsidies do not play a role at all in the international allocation process. Hence, private money does not follow public money. The IPO activity and the size of local public equity markets are not as relevant as proposed by other researchers. Our results can support policymakers to increase the attractiveness of their countries for institutional investors and, thus, to receive more risk capital for innovation, entrepreneurship, employment and growth.Venture Capital; Private Equity; International Asset Allocation; Institutional Investors;

Newtype single-layer magnetic semiconductor in transition-metal dichalcogenides VX 2 (X = S, Se and Te)

We present a newtype 2-dimensional (2D) magnetic semiconductor based on transition-metal dichalcogenides VX2 (X = S, Se and Te) via first-principles calculations. The obtained indirect band gaps of monolayer VS2, VSe2, and VTe2 given from the generalized gradient approximation (GGA) are respectively 0.05, 0.22, and 0.20 eV, all with integer magnetic moments of 1.0 μB. The GGA plus on-site Coulomb interaction U (GGA + U) enhances the exchange splittings and raises the energy gap up to 0.38~0.65 eV. By adopting the GW approximation, we obtain converged G0W0 gaps of 1.3, 1.2, and 0.7 eV for VS2, VSe2, and VTe2 monolayers, respectively. They agree very well with our calculated HSE gaps of 1.1, 1.2, and 0.6 eV, respectively. The gap sizes as well as the metal-insulator transitions are tunable by applying the in-plane strain and/or changing the number of stacking layers. The Monte Carlo simulations illustrate very high Curie-temperatures of 292, 472, and 553 K for VS2, VSe2, and VTe2 monolayers, respectively. They are nearly or well beyond the room temperature. Combining the semiconducting energy gap, the 100% spin polarized valence and conduction bands, the room temperature TC, and the in-plane magnetic anisotropy together in a single layer VX2, this newtype 2D magnetic semiconductor shows great potential in future spintronics

The Global Venture Capital and Private Equity Country Attractiveness Index : 2009/2010 annual

International audienc