Volatility and return spillovers between private equity buyout, venture capital and major financial markets

ABSTRACT

This study investigates the volatility and return spillovers between Private Equity Buyouts (PE) and Venture Capital (VC), the equity market, precious metals, real estate, and the Dollar index, which has been widely ignored in the literature. We analysed daily data from 2 January 2004 to 29 December 2022 using Diebold and Yılmaz's (2012) framework. Our data covers the global financial crisis and the COVID-19 period and is rich enough to examine the linkages between the mentioned financial markets thoroughly. PE's higher connectedness with the equity market than VC’s is the main finding of this research. Besides, PE and VC have low connectedness to precious metals, real estate, and the Dollar index. In the sample period, VC is a net receiver, while PE is a net transmitter of volatility and return spillover. An exciting finding is that during the COVID-19 pandemic, VC experienced lower volatility spillover than PE from the broad market proxied by S&P 500. Investors and portfolio managers can benefit from our results to better diversify their portfolios.

KEYWORDS:

• private equity; venture capital; precious metals
• real estate
• volatility spillovers
• return spillovers
• financial markets
• diversification

JEL CODES:

• C32
• G11
• G15
• G24

Availability of data and materials

The datasets analysed during the current study are available from the authors upon reasonable request.

Authors’ contributions

Korhan Gokmenoglu: Conceptualisation, investigation, writing – review and editing, validation.

Efe Altıngunes: Methodology, writing – original draft preparation, data curation, formal analysis.

Acknowledgments

We appreciate the valuable time, effort, and expertise of the reviewers and editor in reviewing and improving the manuscript.

Competing interests

The authors declare no competing interests related to this research.

Consent to publish

Written consent for publication was obtained from all participants involved in this study.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

This research received no specific grant from any funding agency in the public, commercial, or not-for-profit sectors.