The cash flow, return and risk characteristics of private equity

Using a unique dataset of private equity funds over the last two decades, this paper analyzes the cash flow, return, and risk characteristics of private equity. We document the draw down and capital return schedules for the typical private equity fund, and show that it takes several years for capital to be invested, and over ten years for capital to be returned to generate excess returns. We provide several determining factors for these schedules, including existing investment opportunities and competition amongst private equity funds. In terms of performance, we document that private equity generates excess returns on the order of five plus percent per annum relative to the aggregate public equity market. One interpretation of this magnitude is that it represents compensation for holding a 10-year illiquid investment.

A Multifactor, Nonlinear, Continuous-Time Model of Interest Rate Volatility

This paper presents a general, nonlinear version of existing multifactor models, such as Longstaff and Schwartz (1992). The novel aspect of our approach is that rather than choosing the model parameterization out of thin air,' our processes are generated from the data using approximation methods for multifactor continuous-time Markov processes. In applying this technique to the short- and long-end of the term structure for a general two-factor diffusion process for interest rates, a major finding is that the volatility of interest rates is increasing in the level of interest rates only for sharply upward sloping term structures. In fact, the slope of the term structure plays a larger role in determining the magnitude of the diffusion coefficient. As an application, we analyze the model's implications for the term structure of term premiums.

The Information in Long-Maturity Forward Rates: Implications for Exchange Rates and the Forward Premium Anomaly

The forward premium anomaly is one of the most robust puzzles in financial economics. We recast the underlying parity relation in terms of cross-country differences between forward interest rates rather than spot interest rates with dramatic results. These forward interest rate differentials have statistically and economically significant forecast power for annual exchange rate movements, both in- and out-of-sample, and the signs and magnitudes of the corresponding coefficients are consistent with economic theory. Forward interest rates also forecast future spot interest rates and future inflation. Thus, we attribute much of the forward premium anomaly to the anomalous behavior of short-term interest rates, not to a breakdown of the link between fundamentals and exchange rates.

The Myth of Long-Horizon Predictability

The prevailing view in finance is that the evidence for long-horizon stock return predictability is significantly stronger than that for short horizons. We show that for persistent regressors, a characteristic of most of the predictive variables used in the literature, the estimators are almost perfectly correlated across horizons under the null hypothesis of no predictability. For example, for the persistence levels of dividend yields, the analytical correlation is 99% between the 1- and 2-year horizon estimators and 94% between the 1- and 5-year horizons, due to the combined effects of overlapping returns and the persistence of the predictive variable. Common sampling error across equations leads to ordinary least squares coefficient estimates and R2s that are roughly proportional to the horizon under the null hypothesis. This is the precise pattern found in the data. The asymptotic theory is corroborated, and the analysis extended by extensive simulation evidence. We perform joint tests across horizons for a variety of explanatory variables, and provide an alternative view of the existing evidence.

Mass Estimation through Fusion of Astrometric and Photometric Data Collection with Application to High Area-to-Mass Ratio Objects

This thesis work presents the formulation for a tool developed in MATLAB to determine the mass of a space object from the fusion of astrometric and photometric data. The application for such a tool is to better model the mass estimation method used for high area-to-mass ratio objects found in high altitude orbit regimes. Typically, the effect of solar radiation pressure is examined with angles observations to deduce area-to-mass ratio calculations for space objects since the area-to-mass ratio can greatly affect its orbital dynamics. On the other hand, photometric data is not sensitive to mass but is a function of the albedo-area and the rotational dynamics of the space object. Thus from these two data types it is possible to disentangle intrinsic properties using albedo-area and area-to-mass and ultimately determine the mass of a space object. Three case studies were performed for the different orbit regimes: geosynchronous, highly elliptic, and medium earth orbit. The position states were either initialized with a two line element set or with initial orbit determination methods to simulate data which was run through an unscented Kalman filter to estimate the translational and rotational states of the space object as well as the mass an albedo area. In the geosynchronous and highly elliptic cases the tool was able to accurately predict the mass value to within 5kg of the true value based on a 95% confidence interval which will allow applications to understanding high area-to-mass objects with high certainty

Specific Crime vs. Criminal Ways: Criminal Conduct and Responsibility in Rule 3E1.1

The United States Sentencing Commission ( Sentencing Commission ) drafted Rule 3E1.1 with an inherent ambiguity, one that concerns both the Rule\u27s purpose and design. Rule 3E1.1 allows for a reduction in sentence if a criminal accepts responsibility for his offense.\u27 As result of the Rule\u27s ambiguous language, prior tensions in interpretation of its meaning have spilled over into the current debate over sentence reductions. The inherent ambiguity results from the Rule\u27s genesis. The Sentencing Commission enacted the Rule with the purpose of increasing predictability in sentencing by reducing judicial discretion. Before the enactment of the Rule, mitigating and aggravating circumstances allowed for a great degree of judicial discretion, and it was this lack of uniformity that the Sentencing Commission sought to lessen. Rule 3E1.1 also sought to ease the burden on the over-taxed criminal justice system by encouraging guilty pleas. The Sentencing Commission initially feared, however, that granting an automatic reduction in sentence for pleading guilty would run afoul of the doctrine of unconstitutional conditions. Thus, their solution was not to encourage criminal defendants to forgo their Sixth Amendment right to trial and plead guilty, but rather to reward them for general cooperation and contrition. By creating a system in which criminal defendants were merely denied a reduction for failing to cooperate with authorities, the Sentencing Commission sought to encourage criminal defendants to plead guilty, while at the same time avoiding the problem of unconstitutional conditions. The resulting Rule achieved both goals. It encouraged guilty pleas by reducing a defendant\u27s sentence if he accepted responsibility for his criminal conduct. It also increased predictability by creating an objective list of criteria that district courts would use to determine whether a defendant had in fact accepted responsibility for his crime