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

Author

Listed:
  • Roman Kräussl

    ()

  • Narasimhan Jegadeesh
  • Joshua M. Pollet

    (LSF)

Abstract

We estimate the risk and expected returns of private equity using market prices of publicly traded funds of funds holding unlisted private equity funds and publicly traded private equity funds participating directly in private equity transactions. Based on the performance of these two types of listed vehicles, private equity has a market loading close to one and a significantly positive loading on the Fama-French SMB factor. Private equity performance is also negatively related to the credit spread in addition to the substantial exposure to stock market risk. The performance for listed vehicles exhibits greater systematic risk than the private equity performance index, an index based on the self-reported net asset value of unlisted private equity funds, because this index does not reflect market valuation changes in a timely manner. Finally, we find that the market expects unlisted "Keywords:Private equity; risk-return characteristics; funds of funds"

Suggested Citation

  • Roman Kräussl & Narasimhan Jegadeesh & Joshua M. Pollet, 2014. "Risk and Expected Returns of Private Equity Investments: Evidence Based on Market Prices," LSF Research Working Paper Series 14-04, Luxembourg School of Finance, University of Luxembourg.
  • Handle: RePEc:crf:wpaper:14-04
    as

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    References listed on IDEAS

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    Cited by:

    1. repec:spr:schmbr:v:70:y:2018:i:3:d:10.1007_s41464-018-0050-6 is not listed on IDEAS
    2. 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.
    3. Rin, Marco Da & Hellmann, Thomas & Puri, Manju, 2013. "A Survey of Venture Capital Research," Handbook of the Economics of Finance,, Elsevier.
    4. repec:spr:jbecon:v:88:y:2018:i:3:d:10.1007_s11573-017-0874-4 is not listed on IDEAS
    5. Morten Sorensen & Neng Wang & Jinqiang Yang, 2014. "Valuing Private Equity," Review of Financial Studies, Society for Financial Studies, vol. 27(7), pages 1977-2021.
    6. repec:bla:eufman:v:17:y:2011:i:3:p:594-618 is not listed on IDEAS
    7. A. Dyck & L. Pomorski, 2016. "Investor Scale and Performance in Private Equity Investments," Review of Finance, European Finance Association, vol. 20(3), pages 1081-1106.
    8. 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.

    More about this item

    JEL classification:

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

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