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Private Equity Premium Puzzle Revisited

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  • Katya Kartashova

Abstract

This paper revisits the results of Moskowitz and Vissing-J?gensen (2002) on returns to entrepreneurial investments in the United States. Following the authors' methodology and new data from the Survey of Consumer Finances, I find that the "private equity premium puzzle" does not survive the period of high public equity returns in the 1990s. The difference between private and public equity returns is positive and large period-by-period between 1999 and 2007. Whereas in the 2008-2010 period, overlapping with the Great Recession, public and private equities performances are substantially closer. I validate these results in the aggregate data going back to the 1960s.

Suggested Citation

  • Katya Kartashova, 2014. "Private Equity Premium Puzzle Revisited," American Economic Review, American Economic Association, vol. 104(10), pages 3297-3334, October.
  • Handle: RePEc:aea:aecrev:v:104:y:2014:i:10:p:3297-3334
    Note: DOI: 10.1257/aer.104.10.3297
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    References listed on IDEAS

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    Cited by:

    1. Boyan Jovanovic, 2019. "The entrepreneurship premium," Small Business Economics, Springer, vol. 53(3), pages 555-568, October.
    2. Anmol Bhandari & Serdar Birinci & Ellen R. McGrattan & Kurt See, 2018. "What Do Survey Data Tell Us about U.S. Businesses?," Staff Report 568, Federal Reserve Bank of Minneapolis.
    3. Mariacristina De Nardi & Fella Giulio & Fang Yang, 2016. "Piketty’s Book and Macro Models of Wealth Inequality," Chicago Fed Letter, Federal Reserve Bank of Chicago.
    4. Andreas Fagereng & Luigi Guiso & Davide Malacrino & Luigi Pistaferri, 2020. "Heterogeneity and Persistence in Returns to Wealth," Econometrica, Econometric Society, vol. 88(1), pages 115-170, January.
    5. Dell’Era, Michele & Opromolla, Luca David & Santos-Pinto,, 2018. "A General Equilibrium Theory of Occupational Choice under Optimistic Beliefs about Entrepreneurial Ability," CEPR Discussion Papers 13225, C.E.P.R. Discussion Papers.
    6. Victor Stango & Joanne Yoong & Jonathan Zinman, 2017. "Quicksand or Bedrock for Behavioral Economics? Assessing Foundational Empirical Questions," NBER Working Papers 23625, National Bureau of Economic Research, Inc.
    7. Anmol Bhandari & Ellen R. McGrattan, 2017. "Sweat Equity in U.S. Private Business," Staff Report 560, Federal Reserve Bank of Minneapolis.
    8. Victor Stango & Jonathan Zinman, 2019. "We Are All Behavioral, More or Less: Measuring and Using Consumer-Level Behavioral Sufficient Statistics," Working Papers 19-14, Federal Reserve Bank of Philadelphia, revised 22 Feb 2019.
    9. Fabiano Schivardi & Claudio Michelacci, 2016. "Are They All Like Bill, Mark, and Steve? The Education Premium for Entrepreneurs," 2016 Meeting Papers 1163, Society for Economic Dynamics.
    10. Kim, J. Daniel, 2018. "Is there a startup wage premium? Evidence from MIT graduates," Research Policy, Elsevier, vol. 47(3), pages 637-649.
    11. Abudy, Menachem & Benninga, Simon & Shust, Efrat, 2016. "The cost of equity for private firms," Journal of Corporate Finance, Elsevier, vol. 37(C), pages 431-443.
    12. Mariacristina De Nardi, 2015. "Quantitative Models of Wealth Inequality: A Survey," NBER Working Papers 21106, National Bureau of Economic Research, Inc.
    13. Giacomo Candian & Mikhail Dmitriev, 2020. "Risk Aversion, Uninsurable Idiosyncratic Risk, and the Financial Accelerator," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 37, pages 299-322, July.
    14. Fossen, Frank M., 2012. "Risk attitudes and private business equity," Discussion Papers 2012/11, Free University Berlin, School of Business & Economics.
    15. Victor Stango & Joanne Yoong & Jonathan Zinman, 2017. "The Quest for Parsimony in Behavioral Economics: New Methods and Evidence on Three Fronts," NBER Working Papers 23057, National Bureau of Economic Research, Inc.
    16. Mariacristina De Nardi & Giulio Fella, 2017. "Saving and Wealth Inequality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 280-300, October.
    17. Lei, Xiaowen, 2019. "Information and Inequality," Journal of Economic Theory, Elsevier, vol. 184(C).
    18. Naijia Guo & Charles Ka Yui Leung, 2020. "Do Elite Colleges Matter? The Impact of Elite College Attendance on Entrepreneurship Decisions and Career Dynamics," GRU Working Paper Series GRU_2020_005, City University of Hong Kong, Department of Economics and Finance, Global Research Unit.
    19. anmol bhandari & Ellen McGrattan, 2018. "Sweat Equity in U.S. Private Business," 2018 Meeting Papers 415, Society for Economic Dynamics.
    20. Andrew Ang & Morten Sorensen, 2012. "Risks, Returns, and Optimal Holdings of Private Equity: A Survey of Existing Approaches," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 2(03), pages 1-27.
    21. John Bailey Jones & Sangeeta Pratap, 2017. "An Estimated Structural Model of Entrepreneurial Behavior," Working Paper 17-7, Federal Reserve Bank of Richmond, revised 08 May 2017.
    22. Joachim Hubmer & Per Krusell & Anthony A. Smith Jr., 2020. "Sources of U.S. Wealth Inequality: Past, Present, and Future," NBER Chapters, in: NBER Macroeconomics Annual 2020, volume 35, National Bureau of Economic Research, Inc.
    23. Sari Pekkala Kerr & William R. Kerr & Tina Xu, 2017. "Personality Traits of Entrepreneurs: A Review of Recent Literature," NBER Working Papers 24097, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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