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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
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    File URL: https://doi.org/10.1111/eufm.12002
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    References listed on IDEAS

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    1. 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.
    2. Robert Wiltbank, 2005. "Investment practices and outcomesof informal venture investors," Venture Capital, Taylor & Francis Journals, vol. 7(4), pages 343-357, August.
    3. Ludovic Phalippou & Oliver Gottschalg, 2009. "The Performance of Private Equity Funds," Review of Financial Studies, Society for Financial Studies, vol. 22(4), pages 1747-1776, April.
    4. repec:bla:eufman:v:17:y:2011:i:4:p:619-654 is not listed on IDEAS
    5. Mason, Colin M. & Harrison, Richard T., 2002. "Is it worth it? The rates of return from informal venture capital investments," Journal of Business Venturing, Elsevier, vol. 17(3), pages 211-236, May.
    6. Cora Barnhart & Gerald P. Dwyer, 2012. "Returns To Investors In Stocks In New Industries," Economic Inquiry, Western Economic Association International, vol. 50(4), pages 1031-1049, October.
    7. 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.
    8. 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.
    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.
    10. repec:bla:eufman:v:20:y:2014:i:4:p:739-755 is not listed on IDEAS
    11. Cochrane, John H., 2005. "The risk and return of venture capital," Journal of Financial Economics, Elsevier, vol. 75(1), pages 3-52, January.
    12. Manju Puri & Rebecca Zarutskie, 2012. "On the Life Cycle Dynamics of Venture-Capital- and Non-Venture-Capital-Financed Firms," Journal of Finance, American Finance Association, vol. 67(6), pages 2247-2293, December.
    13. repec:bla:eufman:v:17:y:2011:i:3:p:436-463 is not listed on IDEAS
    14. 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.
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    1. repec:bla:eufman:v:20:y:2014:i:4:p:739-755 is not listed on IDEAS
    2. repec:pal:jintbs:v:50:y:2019:i:5:d:10.1057_s41267-018-0178-0 is not listed on IDEAS
    3. repec:eee:tefoso:v:139:y:2019:i:c:p:287-302 is not listed on IDEAS
    4. repec:eee:jbfina:v:100:y:2019:i:c:p:328-345 is not listed on IDEAS
    5. repec:kap:sbusec:v:52:y:2019:i:2:d:10.1007_s11187-017-9955-6 is not listed on IDEAS
    6. 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.

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