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Risk and Expected Returns of Private Equity Investments: Evidence Based on Market Prices

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  • Narasimhan Jegadeesh
  • Roman Kräussl
  • Joshua M. Pollet

Abstract

We estimate the risk and expected return of private equity using market prices of publicly traded funds of funds holding unlisted private equity funds and of publicly traded private equity funds participating directly in private equity transactions. We find that the market expects unlisted private equity funds to earn abnormal returns between −0.5% and 2% per year. In addition, private equity has a market beta close to one and a positive beta on the SMB factor. These listed funds exhibit greater systematic risk than an index based on the self-reported net asset value of unlisted private equity funds.

Suggested Citation

  • Narasimhan Jegadeesh & Roman Kräussl & Joshua M. Pollet, 2015. "Risk and Expected Returns of Private Equity Investments: Evidence Based on Market Prices," Review of Financial Studies, Society for Financial Studies, vol. 28(12), pages 3269-3302.
  • Handle: RePEc:oup:rfinst:v:28:y:2015:i:12:p:3269-3302.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhv046
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    Cited by:

    1. Robert S. Harris & Tim Jenkinson & Steven N. Kaplan, 2014. "Private Equity Performance: What Do We Know?," Journal of Finance, American Finance Association, vol. 69(5), pages 1851-1882, October.
    2. Rin, Marco Da & Hellmann, Thomas & Puri, Manju, 2013. "A Survey of Venture Capital Research," Handbook of the Economics of Finance, Elsevier.
    3. repec:spr:jbecon:v:88:y:2018:i:3:d:10.1007_s11573-017-0874-4 is not listed on IDEAS
    4. Morten Sorensen & Neng Wang & Jinqiang Yang, 2014. "Valuing Private Equity," Review of Financial Studies, Society for Financial Studies, vol. 27(7), pages 1977-2021.
    5. Robinson, David T. & Sensoy, Berk A., 2016. "Cyclicality, performance measurement, and cash flow liquidity in private equity," Journal of Financial Economics, Elsevier, vol. 122(3), pages 521-543.

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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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