Chapter 1: The Risk and Performance of Listed Private Equity
Private Equity (PE) risk and performance are a black box for investors as information is quasi-private during a fund's life. To overcome this issue, we use the universe oflisted PEs
(LPEs) in U.S. exchanges, which permits the measurement of financial fundamentals based on audited quarterly reports, and the observation of share price performance and volatility on a real-time basis. We first show that LPE performance and valuations are highly correlated to that ofunlisted PEs, hence are a good proxy. LPEs constantly exhibit leverage double that of the broader market while showing no distinctive share price performance. Controlling for standard determinants of returns, LPE firms do not outperform market benchmarks. Using COVID-19 as an exogenous increase in tail risk, PE firms grossly underperform as markets penalize the riskiness and lack of transparency inherent in PE investments. The problems are likely greater in privately held PEs, where performance is self-reported, not audited, and illiquidity periods last up to 10-12 years.
Chapter 2: Tail Risks and Listed Private Equity Returns
We leverage the context of the Covid-19 pandemic, a completely unexpected event, to explore what influences the value of private equity firms. We look at the entire range of private equity firms that are publicly listed, which allows us to measure various specific attributes of these firms and their performance with accuracy and immediacy. We find that listed private equity firms on average perform poorly during the crisis. However, there is a substantial cross­ sectional variation within firms which depends on their access to capital, riskiness, transparency, and ownership structure. Our study provides early evidence of the impact of Covid-19 on private equity firms and adds to the literature that attempts to understand the value drivers and performance of this alternative investment class.
Chapter 3: The Asset Pricing Enigma: How Analyst Forecasts Shape Investor Disagreement
I challenge the conventional practice of using analyst EPS forecast dispersion as a direct measure of investor disagreement. By delving into the intricate dynamics of investor heterogeneity, I present evidence suggesting that the interplay between analyst forecasts and investor disagreement is more complex than traditionally assumed. Findings highlight how forecast uncertainty and precision shape investor disagreement and its subsequent effect on asset pricing. This disagreement, especially when informed by analyst forecasts, has a significant impact on mispricing and ensuing returns. I further demonstrate that the effects of this relationship vary significantly during periods in:fluenced by earnings announcements.
This research not only enhances our understanding of underlying investor heterogeneity mechanisms but also acts as an apparatus for future studies, encouraging a more accurate representation of investor disagreement and its complex impact on asset returns.