Abstract

http://ssrn.com/abstract=965917
 
 

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A New Method to Estimate Risk and Return of Non-traded Assets from Cash Flows: The Case of Private Equity Funds


Joost Driessen


Tilburg University - Department of Finance; CentER Tilburg University

Tse-Chun Lin


University of Hong Kong - Faculty of Business and Economics

Ludovic Phalippou


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

February 14, 2011

Journal of Financial and Quantitative Analysis (JFQA), Forthcoming
EFA 2007 Ljubljana Meetings Paper
AFA 2008 New Orleans Meetings Paper
Swedish Institute for Financial Research Conference on The Economics of the Private Equity Market

Abstract:     
We develop a new methodology to estimate abnormal performance and risk exposure of non-traded assets from cash flows. Our methodology extends the standard internal rate of return approach to a dynamic setting. The small-sample properties are validated using a simulation study. We apply the method to a sample of 958 private equity funds. For venture capital funds, we find a high market beta and underperformance before and after fees. For buyout funds, we find a relatively low market beta and no evidence for outperformance. We find that self-reported net asset values significantly overstate fund values for mature and inactive funds.

Number of Pages in PDF File: 50

Keywords: Risk exposure, Abnormal return, Private equity

JEL Classification: C51, G12, G23

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Date posted: February 27, 2007 ; Last revised: April 2, 2011

Suggested Citation

Driessen, Joost and Lin, Tse-Chun and Phalippou, Ludovic, A New Method to Estimate Risk and Return of Non-traded Assets from Cash Flows: The Case of Private Equity Funds (February 14, 2011). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming; EFA 2007 Ljubljana Meetings Paper; AFA 2008 New Orleans Meetings Paper; Swedish Institute for Financial Research Conference on The Economics of the Private Equity Market. Available at SSRN: http://ssrn.com/abstract=965917

Contact Information

Joost Driessen (Contact Author)
Tilburg University - Department of Finance ( email )
P.O. Box 90153
Tilburg, 5000 LE
Netherlands
CentER Tilburg University ( email )
P.O. Box 90153
Tilburg, 5000 LE
Netherlands
Tse-Chun Lin
University of Hong Kong - Faculty of Business and Economics ( email )
Pok Fu Lam Road
Hong Kong
Hong Kong
+852 2857-8503 (Phone)
HOME PAGE: http://www.sef.hku.hk/people/faculty/tclin.html
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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