The S&P Private Equity Index versus the Private Equity Total Return Index: A Volatility Comparison

Abstract

This article analyzes and compares the daily volatility behavior shown by the S&P private equity index and private equity total return index from October 2006 to December 2010.The S&P private equity index is the index for the top-30 listed private equity firms, whereas the private equity total return index includes all U.S. private equity firms. The volatility for the two indexes is calculated with the help of generalized autoregressive conditional hetroskedasticity (GARCH), and future estimates for next six months are made. The results show that the S&P private equity index has more volatility than the private equity total return index. The first reason is that the S&P private equity index comprises only 30 companies, whereas the private equity total return index includes all the private equity funds operating in U.S. The second reason is that companies in the total private equity index made less risky investments than those of the S&P private equity index for financing private equity and leveraged buyouts.

TOPICS: Private equity, volatility measures, statistical methods