Private Equity Performance and Liquidity Risk
80 Pages Posted: 4 Dec 2009 Last revised: 13 Sep 2012
There are 2 versions of this paper
Private Equity Performance and Liquidity Risk
Private Equity Performance and Liquidity Risk
Date Written: August 29, 2011
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.
Keywords: Private equity, Liquidity risk, Cost of capital
JEL Classification: C51, G12, G23
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Paper statistics
Recommended Papers
-
By Steven N. Kaplan and Per Strömberg
-
By Steven N. Kaplan and Per Strömberg
-
Venture Capital and the Structure of Capital Markets: Banks Versus Stock Markets
By Ronald J. Gilson and Bernard S. Black
-
Money Chasing Deals?: The Impact of Fund Inflows on Private Equity Valuations
By Paul A. Gompers and Josh Lerner
-
Private Equity Performance: Returns, Persistence and Capital Flows
-
Private Equity Performance: Returns, Persistence and Capital
-
The Returns to Entrepreneurial Investment: A Private Equity Premium Puzzle?
-
Venture Capital and the Professionalization of Start-Up Firms: Empirical Evidence
By Thomas F. Hellmann and Manju Puri