Risk and Expected Returns of Private Equity Investments: Evidence Based on Market Prices

47 Pages Posted: 15 Sep 2009 Last revised: 13 Oct 2009

See all articles by Narasimhan Jegadeesh

Narasimhan Jegadeesh

Emory University - Department of Finance

Roman Kräussl

Luxembourg School of Finance; Hoover Institution, Stanford University

Joshua Matthew Pollet

University of Illinois at Urbana-Champaign - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: September 2009

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 approximately 1% per year. We also find that the market expects listed private equity funds to earn zero or 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 related to GDP growth and negatively related to the credit spread. In addition, 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 and Kraeussl, Roman and Pollet, Joshua Matthew, Risk and Expected Returns of Private Equity Investments: Evidence Based on Market Prices (September 2009). NBER Working Paper No. w15335. Available at SSRN: https://ssrn.com/abstract=1472273

Narasimhan Jegadeesh (Contact Author)

Emory University - Department of Finance ( email )

Atlanta, GA 30322-2710
United States

Roman Kraeussl

Luxembourg School of Finance ( email )

4, rue Albert Borschette
Luxembourg, 1246
Luxembourg
+3524666445442 (Phone)

HOME PAGE: http://www.art-finance.com

Hoover Institution, Stanford University ( email )

Stanford, CA 94305
United States

Joshua Matthew Pollet

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
(217) 344-4311 (Phone)

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