Volatility and Returns Analysis of U.S. PE Index

Abstract

This research examines the trends in the U.S. PE Total Return Index and the market, as represented by the S&P 500 Index, over the last five years. The study shows that there was high degree of positive correlation between returns on the PE index and the S&P 500.The study suggests that the PE index was far more sensitive than the S&P 500. The study also shows that the PE index outperformed the S&P 500 when total risk is taken into consideration but fails to perform better if only systematic risk is taken into consideration. When it comes to the future trends in their movements, the authors predict that in the first two years S&P 500 will perform better than the PE index, but in the next three years after that, the PE index will outperform the S&P 500. All in all, the study suggests that the PE index is more sensitive, more volatile, and more rewarding than the S&P 500.

TOPICS: Private equity, portfolio construction, volatility measures, statistical methods