Abstract

http://ssrn.com/abstract=1517044
 
 

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Private Equity Performance and Liquidity Risk


Francesco A. Franzoni


University of Lugano; Swiss Finance Institute

Eric Nowak


University of Lugano; Swiss Finance Institute

Ludovic Phalippou


University of Oxford - Said Business School; University of Oxford - Oxford-Man Institute of Quantitative Finance

August 29, 2011

Journal of Finance, Forthcoming
Swiss Finance Institute Research Paper No. 09-43

Abstract:     
Private equity has traditionally been thought to provide diversi…cation bene…ts. However, these benefi…ts may be lower than anticipated. We …find that private equity suffers from signifi…cant exposure to the same liquidity risk factor as public equity and other alternative asset classes. The unconditional liquidity risk premium is close to 3% annually and, in a four-factor model, the inclusion of this liquidity risk premium reduces alpha to zero. In addition, we provide evidence that the link between private equity returns and overall market liquidity occurs via a funding liquidity channel.

Number of Pages in PDF File: 80

Keywords: Private equity, Liquidity risk, Cost of capital

JEL Classification: C51, G12, G23

Accepted Paper Series


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Date posted: December 4, 2009 ; Last revised: September 13, 2012

Suggested Citation

Franzoni, Francesco A. and Nowak, Eric and Phalippou, Ludovic, Private Equity Performance and Liquidity Risk (August 29, 2011). Journal of Finance, Forthcoming; Swiss Finance Institute Research Paper No. 09-43. Available at SSRN: http://ssrn.com/abstract=1517044 or http://dx.doi.org/10.2139/ssrn.1517044

Contact Information

Francesco A. Franzoni (Contact Author)
University of Lugano ( email ) ( email )
University of Lugano
Via G. Buffi 13
Lugano, 6904
Switzerland
Swiss Finance Institute ( email ) ( email )
University of Lugano
Via G. Buffi 13
Lugano, 6904
Switzerland
Eric Nowak
University of Lugano ( email )
Via Buffi 13
CH-6900 Lugano
Switzerland
+41-91-9124-637 (secr. -712) (Phone)
+41-91-9124-647 (Fax)
Swiss Finance Institute ( email )
c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland

Ludovic Phalippou
University of Oxford - Said Business School ( email )
Park End Street
Oxford, OX1 1HP
Great Britain
University of Oxford - Oxford-Man Institute of Quantitative Finance ( email )
Eagle House
Walton Well Road
Oxford, Oxfordshire OX2 6ED
United Kingdom
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