NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Narasimhan Jegadeesh, Roman Kräussl, Joshua Pollet

NBER Working Paper No. 15335
Issued in September 2009
NBER Program(s):   AP

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.

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Document Object Identifier (DOI): 10.3386/w15335

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