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Review of Quantitative Finance and Accounting

, Volume 38, Issue 3, pp 391–410 | Cite as

Short and long-term interactions between venture capital returns and the macroeconomy: evidence for the United States

  • Roland Füss
  • Denis Schweizer
Original Research

Abstract

The main purpose of this paper is to empirically model the influence of macroeconomic and financial variables on the performance of risk capital in the US. We start our investigation using a static long-run equilibrium model. In contrast to previous studies, we analyze the effect of several factors simultaneously within the framework of a vector error correction model (VECM). This allows us to study short- and long-term interactions to overcome the problem of endogeneity, and to discover causal mechanisms. The results show that the value of venture capital investments is positively related to industrial production, the exit channel Nasdaq, and the long-term interest rate. However, the value of venture capital investments is negatively related to the short-term interest rate. According to the short-term dynamics, VEC Granger causality confirms that only industrial production influences venture capital performance, while venture capital returns Granger causes Nasdaq performance.

Keywords

Venture capital returns Macroeconomy Cointegration test VECM Granger causality Variance decomposition 

JEL Classification

C32 F4 G24 

Notes

Acknowledgments

We would like to thank the editor Cheng-Few Lee and the two anonymous reviewers for their helpful comments and suggestions. We are grateful to Daniel Schmidt, from CEPRES, for providing access to their databases. Furthermore, we would like to thank Samuel Bulmash, Christian Koziol, Lutz Johanning, Jan-Christoph Rülke, Joachim Zietz, and the participants of the Eastern Finance Association 45th Annual Meeting, Campus for Finance 2009 Conference, and the Swiss Society for Financial Markets (SGF) 12th Annual Meeting. All remaining errors are of course our own.

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Copyright information

© Springer Science+Business Media, LLC 2011

Authors and Affiliations

  1. 1.EBS Business SchoolEBS Universität für Wirtschaft und RechtWiesbadenGermany
  2. 2.WHU-Otto Beisheim School of ManagementVallendarGermany

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