NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Tobias J. Moskowitz, Annette Vissing-Jorgensen

NBER Working Paper No. 8876
Issued in April 2002
NBER Program(s):   AP   CF

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.

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Document Object Identifier (DOI): 10.3386/w8876

Published: Moskowitz, Tobias J. and Annette Vissing-Jørgensen. “The Returns to Entrepreneurial Investment: A Private Equity Premium Puzzle?" American Economic Review 92, 4 (2002): 745-778.

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