Short and long-term interactions between venture
capital returns and the macroeconomy:
evidence for the United States
Published online: 15 March 2011
Ó Springer Science+Business Media, LLC 2011
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 Á Macroeconomy Á Cointegration test Á VECM Á
Granger causality Á Variance decomposition
JEL Classiﬁcation C32 Á F4 Á G24
Alternative investments, especially hedge funds and private equity, have grown to become
important actors in the economy. Some funds are now large enough to inﬂuence corporate
strategy of major publicly traded enterprises (e.g., Brav et al. 2008; Klein and Zur 2009).
EBS Business School, EBS Universita
r Wirtschaft und Recht, Gustav-Stresemann-Ring 3,
65189 Wiesbaden, Germany
WHU-Otto Beisheim School of Management, Burgplatz 2, 56179 Vallendar, Germany
Rev Quant Finan Acc (2012) 38:391–410