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Expected Returns to Stock Investments by Angel Investors in Groups

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  • Ramon P. DeGennaro
  • Gerald P. Dwyer

Abstract

Previous research calculates realised internal rates of return on angel investments but does not estimate expected returns. We present the first estimates of expected returns on angel investments by applying a consistent statistical framework to a new data set. Our sample spans 1972 to 2007 with 419 exited investments. Our results suggest that expected returns on stock for angel investors in groups are about 70% per year in excess of the riskfree rate. These expected returns have a large variance and are heavily skewed, with many losses and occasional extraordinarily high returns.

Suggested Citation

  • Ramon P. DeGennaro & Gerald P. Dwyer, 2014. "Expected Returns to Stock Investments by Angel Investors in Groups," European Financial Management, European Financial Management Association, vol. 20(4), pages 739-755, September.
  • Handle: RePEc:bla:eufman:v:20:y:2014:i:4:p:739-755
    DOI: 10.1111/eufm.12002
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    References listed on IDEAS

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    1. Andrew Metrick & Ayako Yasuda, 2011. "Venture Capital and Other Private Equity: a Survey," European Financial Management, European Financial Management Association, vol. 17(4), pages 619-654, September.
    2. Ramon P. DeGennaro & Gerald P. Dwyer, 2014. "Expected Returns to Stock Investments by Angel Investors in Groups," European Financial Management, European Financial Management Association, vol. 20(4), pages 739-755, September.
    3. Kasper Meisner Nielsen, 2011. "The Return to Direct Investment in Private Firms: New Evidence on the Private Equity Premium Puzzle," European Financial Management, European Financial Management Association, vol. 17(3), pages 436-463, June.
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    9. Douglas Cumming & Uwe Walz, 2010. "Private equity returns and disclosure around the world," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 41(4), pages 727-754, May.
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    11. Arthur Korteweg & Morten Sorensen, 2010. "Risk and Return Characteristics of Venture Capital-Backed Entrepreneurial Companies," Review of Financial Studies, Society for Financial Studies, vol. 23(10), pages 3738-3772, October.
    12. Tobias J. Moskowitz & Annette Vissing-Jørgensen, 2002. "The Returns to Entrepreneurial Investment: A Private Equity Premium Puzzle?," American Economic Review, American Economic Association, vol. 92(4), pages 745-778, September.
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    Cited by:

    1. Ramon P. DeGennaro & Gerald P. Dwyer, 2014. "Expected Returns to Stock Investments by Angel Investors in Groups," European Financial Management, European Financial Management Association, vol. 20(4), pages 739-755, September.
    2. Douglas Cumming & Minjie Zhang, 2019. "Angel investors around the world," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 50(5), pages 692-719, July.
    3. Douglas Cumming & Jochen Christian Werth & Yelin Zhang, 2019. "Governance in entrepreneurial ecosystems: venture capitalists vs. technology parks," Small Business Economics, Springer, vol. 52(2), pages 455-484, February.
    4. Kaminski, Jermain & Hopp, Christian & Tykvová, Tereza, 2019. "New technology assessment in entrepreneurial financing – Does crowdfunding predict venture capital investments?," Technological Forecasting and Social Change, Elsevier, vol. 139(C), pages 287-302.
    5. Bonini, Stefano & Capizzi, Vincenzo & Zocchi, Paola, 2019. "The performance of angel-backed companies," Journal of Banking & Finance, Elsevier, vol. 100(C), pages 328-345.

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