A New Method to Estimate Risk and Return of Nontraded Assets from Cash Flows: The Case of Private Equity Funds
We develop a new methodology to estimate abnormal performance and risk exposure of nontraded assets from cash flows. Our methodology extends the standard internal rate of return approach to a dynamic setting. The small-sample properties are validated using a simulation study. We apply the method to a sample of 958 private equity funds. For venture capital funds, we find a high market beta and underperformance before and after fees. For buyout funds, we find a relatively low market beta and no evidence for outperformance. We find that self-reported net asset values significantly overstate fund values for mature and inactive funds.
Year of publication: |
2012
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Authors: | Driessen, Joost ; Lin, Tse-Chun ; Phalippou, Ludovic |
Published in: |
Journal of Financial and Quantitative Analysis. - Cambridge University Press. - Vol. 47.2012, 03, p. 511-535
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Publisher: |
Cambridge University Press |
Description of contents: | Abstract [journals.cambridge.org] |
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