The Returns to Entrepreneurial Investment: A Private Equity Premium Puzzle?

54 Pages Posted: 4 Apr 2002 Last revised: 24 Jan 2022

See all articles by Annette Vissing-Jorgensen

Annette Vissing-Jorgensen

Federal Reserve Board; National Bureau of Economic Research (NBER)

Tobias J. Moskowitz

AQR Capital; Yale University, Yale SOM; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: April 2002

Abstract

We document the return to investing in U.S. nonpublicly traded equity. Entrepreneurial investment is extremely concentrated, yet despite its poor diversification, we find that the returns to private equity are no higher than the returns to public equity. Given the large public equity premium, it is puzzling why households willingly invest substantial amounts in a single privately held firm with a seemingly far worse risk-return tradeoff. We briefly discuss how large nonpecuniary benefits, a preference for skewness, or overestimates of the probability of survival could potentially explain investment in private equity despite these findings.

Suggested Citation

Vissing-Jorgensen, Annette and Moskowitz, Tobias J. and Moskowitz, Tobias J., The Returns to Entrepreneurial Investment: A Private Equity Premium Puzzle? (April 2002). NBER Working Paper No. w8876, Available at SSRN: https://ssrn.com/abstract=306410

Annette Vissing-Jorgensen

Federal Reserve Board ( email )

20th Street and Constitution Avenue NW
Washington, DC 20015
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Tobias J. Moskowitz (Contact Author)

AQR Capital ( email )

Greenwich, CT
United States

Yale University, Yale SOM ( email )

493 College St
New Haven, CT CT 06520
United States

HOME PAGE: http://som.yale.edu/tobias-j-moskowitz

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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