IFZ Working Paper » Private Equity Investments in Listed Equity: Size and Home bias effects»

This paper analyses 689 investments of private equity companies in listed equities between 1999 and 2008. We find on average a positive market reaction to the public announcement of the deal in the short-term. The short-term positive market reaction also extends in the long-term. Based on the long-term event study approach of Mitchell/Stafford (2000), a portfolio of stocks bought by private equity investors achieves a yearly alpha of between 8.5% and 13.5%. In general, the short-term alphas and the long-term alphas are more pronounced when a private equity investor buys a listed stock of her home country than when she invests abroad. This justifies a home bias in private equity investments. Also, the investment in small capitalized stocks produces higher excess returns than an investment in large stocks. Thus, there is also a size effect in private equity investments.

The working paper is available here.

Für das IFZ, Prof. Dr. Olaf Stotz, Prof. Dr. Gabrielle Wanzenried, Dr. Karsten Döhnert