Discount Rate Risk in Private Equity: Evidence from Secondary Market Transactions

Brian Boyer, Taylor D. Nadauld, Keith P. Vorkink and Michael Weisbach
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Brian Boyer: Brigham Young U
Taylor D. Nadauld: Brigham Young U
Keith P. Vorkink: Brigham Young U

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: Standard measures of PE performance based on cash flows overlook discount rate risk. An index constructed from prices paid in secondary market transactions indicates that PE discount rates vary considerably. While the standard alpha for our index is zero, measures of performance based on cash flow data for funds in our index are large and positive. To illustrate that results are not driven by idiosyncrasies of PE secondary markets, we obtain similar results using cash flows and returns of synthetic funds that invest in small cap stocks. Ignoring variation in PE discount rates can lead to a misallocation of capital.

JEL-codes: G11 G23 G24 (search for similar items in EconPapers)
Date: 2021-04
New Economics Papers: this item is included in nep-cfn and nep-fmk
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http://www.ssrn.com/abstract=3823332

Related works:
Journal Article: Discount‐Rate Risk in Private Equity: Evidence from Secondary Market Transactions (2023)
Working Paper: Discount Rate Risk in Private Equity: Evidence from Secondary Market Transactions (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2021-04

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