PrefBlog

The Bank of Canada has released a working paper by Katya Kartashova titled The Private Equity Premium Puzzle Revisited:

In this paper, I extend the results of Moskowitz and Vissing-Jørgensen (2002) on the returns to entrepreneurial investments in the United States. First, following the authors’ methodology I replicate the original findings from the Survey of Consumer Finances (SCF) for the period 1989–1998 and show that the returns to private and public equity are similar. I then extend the period under consideration using data from subsequently released waves of SCF 2001, 2004, and 2007 and assess the robustness of their results to this extension. I find that the “private equity premium puzzle” is not a robust feature of the data and does not survive beyond the period of high public equity returns in the 1990s. In particular, returns to entrepreneurial equity remain largely unaffected when public equity returns plunge to near zero values between 1999 and 2001. The average return to private equity exceeds public equity return in 1999-2007 and for the period 1989-2007 as a whole. To validate the results, I provide alternative measures of private equity returns in the data.

The Bank of England has released a working paper by Filipa Sá, Pascal Towbin and Tomasz Wieladek titled Low interest rates and housing booms: the role of capital inflows, monetary policy and financial innovation:

A number of OECD countries experienced an environment of low interest rates and a rapid increase in housing market activity during the last decade. Previous work suggests three potential explanations for these events: expansionary monetary policy, capital inflows due to a global savings glut and excessive financial innovation combined with inappropriately lax financial regulation. In this study we examine the effects of these three factors on the housing market. We estimate a panel VAR for a sample of OECD countries and identify monetary policy and capital inflows shocks using sign restrictions. To explore how these effects change with the structure of the mortgage market and the degree of securitisation, we augment the VAR to let the coefficients vary with mortgage market characteristics. Our results suggest that both types of shocks have a significant and positive effect on real house prices, real credit to the private sector and real residential investment. The responses of housing variables to both types of shocks are stronger in countries with more developed mortgage markets, roughly doubling the responses to a monetary policy shock. The amplification effect of mortgage-backed securitisation is particularly strong for capital inflows shocks, increasing the response of real house prices, residential investment and real credit by a factor of two, three and five, respectively.

A mixed day on the Canadian preferred share market, but mainly down. PerptualDiscounts gained 9bp, FixedResets lost 8bp and DeemedRetractibles were off 14bp. Volume picked up a bit, to elevated levels.

This entry was posted on Wednesday, February 23rd, 2011 at 1:39 am and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.