The FDEF congratulates Aleksandr Ermakov, PhD student within the Doctoral School in Economics, Finance and Management for his award-winning paper, ‘Believe it or Not: The Role of Investor Beliefs for Private Equity Valuation’. The paper won the Best paper PhD Workshop Award 2023 at the 39th Conference of the French Finance Association (AFFI), held at Kedge Business School from 5 to 7 June 2023.
In the paper, Aleksandr shows that investors’ beliefs can explain the undervaluation of private equity (PE) funds. The value of PE, in accordance with finance principles, is determined by the expected cash flows discounted for time and risk. Therefore, abnormal performance may stem from either an incorrect stochastic discount factor or a discrepancy between investors’ beliefs and the true distribution of cash flows. Proposing an estimation method based on Empirical Likelihood to back out investors’ beliefs from funds’ cash flows, Aleksandr validates estimated beliefs using investors’ sentiment surveys. Furthermore, Aleksandr finds that investors’ pessimism about PE cash flows and overoptimism about public market cash flows, rather than SDF misspecification, offer a potential explanation for the undervaluation of PE funds.
Aleksandr also presented the paper at the International Accounting & Finance Doctoral Symposium at SKEMA Business School in Paris, France from 11 to 13 June where he was recognised with a Best Student Discussant award.