Risk‐Adjusting the Returns to Venture Capital

Arthur Korteweg and Stefan Nagel

Journal of Finance, 2016, vol. 71, issue 3, 1437-1470

Abstract: We adapt stochastic discount factor (SDF) valuation methods for venture capital (VC) performance evaluation. Our approach generalizes the popular Public Market Equivalent (PME) method and allows statistical inference in the presence of cross‐sectionally dependent, skewed VC payoffs. We relax SDF restrictions implicit in the PME so that the SDF can accurately reflect risk‐free rates and returns of public equity markets during the sample period. This generalized PME yields substantially different abnormal performance estimates for VC funds and start‐up investments, especially in times of strongly rising public equity markets and for investments with betas far from one.

Date: 2016
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Citations: View citations in EconPapers (41)

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https://doi.org/10.1111/jofi.12390

Related works:
Working Paper: Risk-Adjusting the Returns to Venture Capital (2013)
Working Paper: Risk-Adjusting the Returns to Venture Capital (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:71:y:2016:i:3:p:1437-1470

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