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Risk and expected returns of private equity investments: Evidence based on market prices

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  • Jegadeesh, Narasimhan
  • Kräussl, Roman
  • Pollet, Joshua

Abstract

We estimate the risk and expected returns of private equity investments based on the market prices of exchange traded funds of funds that invest in unlisted private equity funds. Our results indicate that the market expects unlisted private equity funds to earn abnormal returns of about one to two percent. We also find that the market expects listed private equity funds to earn zero to marginally negative abnormal returns net of fees. Both listed and unlisted private equity funds have market betas close to one and positive factor loadings on the Fama-French SMB factor. Private equity fund returns are positively correlated with GDP growth and negatively correlated with the credit spread. Finally, we find that market returns of exchange traded funds of funds and listed private equity funds predict changes in self-reported book values of unlisted private equity funds.

Suggested Citation

  • Jegadeesh, Narasimhan & Kräussl, Roman & Pollet, Joshua, 2010. "Risk and expected returns of private equity investments: Evidence based on market prices," CFS Working Paper Series 2010/04, Center for Financial Studies (CFS).
    • Handle: RePEc:zbw:cfswop:201004
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    References listed on IDEAS

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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. Morten Sorensen & Neng Wang & Jinqiang Yang, 2014. "Valuing Private Equity," Review of Financial Studies, Society for Financial Studies, vol. 27(7), pages 1977-2021.
    4. 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

    Keywords

    Private Equity; Listed Private Equity; Risk-Return Characteristics; Funds of Funds;

    JEL classification:

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

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