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http://ssrn.com/abstract=252310
 
 

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The Private Equity Premium Puzzle


Annette Vissing-Jorgensen


Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER)

Tobias J. Moskowitz


University of Chicago - Booth School of Business

November 2000

CRSP Working Paper No. 524

Abstract:     
We document that investment in private equity is extremely concentrated. Yet despite the very poor diversification of entrepreneurs' portfolios, we find that the returns to private equity are surprisingly low. Given the large premium required by investors in public equity, it is puzzling why households willingly invest substantial amounts in a single privately held firm with a far worse risk-return tradeoff. We examine various explanations and conclude that private nonpecuniary benefits of control must be large and/or entrepreneurs must greatly overestimate their probability of success in order to explain the observed concentration of wealth in private equity.

Number of Pages in PDF File: 51

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Date posted: February 21, 2001  

Suggested Citation

Vissing-Jorgensen, Annette and Moskowitz, Tobias J., The Private Equity Premium Puzzle (November 2000). CRSP Working Paper No. 524. Available at SSRN: http://ssrn.com/abstract=252310 or http://dx.doi.org/10.2139/ssrn.252310

Contact Information

Annette Vissing-Jorgensen
Northwestern University - Kellogg School of Management ( email )
Department of Finance
2001 Sheridan Road
Evanston, IL 60208-2001
United States
HOME PAGE: http://www.kellogg.northwestern.edu/faculty/vissing/htm/research1.htm
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Tobias J. Moskowitz (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-2757 (Phone)
773-702-0458 (Fax)
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