Abstract

http://ssrn.com/abstract=252310
 
 

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The Private Equity Premium Puzzle


Annette Vissing-Jorgensen


National Bureau of Economic Research (NBER); University of California Berkeley, Haas School of Business

Tobias J. Moskowitz


AQR Capital; University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

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
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
University of California Berkeley, Haas School of Business ( email )
545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States
Tobias J. Moskowitz (Contact Author)
AQR Capital ( email )
Greenwich, CT
United States

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)

Chicago Booth School of Business Logo

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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