This paper suggests an alternative explanation for the recently documented betting against beta anomaly. Given that the equity of a levered firm is equivalent to a call option on firm assets and option returns are non-linearly related to underlying stock returns, linear CAPM-type regressions are...

This paper develops a novel Public Market Equivalent (PME) measure to evaluate the risk-adjusted performance of private equity investments using the standard CAPM and multi-factor extensions. Using a comprehensive sample of 7,732 fully realized venture capital investments, the paper estimates...

The paper develops a novel econometric approach to estimate abnormal returns and systematic risk of private equity investments from observable investment cash flows. A unique feature of the method is that it gives closed-form estimators for systematic risk and abnormal returns. In addition,...

Compensation of private equity fund managers typically consists of a fixed management fee and a performance related carried interest which entitles managers to option-like payoffs. We consider whether this structure tends to reward excessive risk-taking rather than managerial skill. Our model of...

We derive a novel model of the cash flow dynamics and equilibrium values of private equity funds. Based on intertemporal capital asset pricing results for an investor with logarithmic utility, the model explains a life cycle of systematic fund risk and fund value. The closed form solution allows...