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

Brian H. Boyer, Taylor D. Nadauld, Keith P. Vorkink and Michael Weisbach

Journal of Finance, 2023, vol. 78, issue 2, 835-885

Abstract: Measures of private equity (PE) performance based on cash flows do not account for a discount‐rate risk premium that is a component of the capital asset pricing model (CAPM) alpha. We create secondary market PE indices and find that PE discount rates vary considerably. Net asset values are too smooth because they fail to reflect variation in discount rates. Although the CAPM alpha for our index is zero, the generalized public market equivalent based on cash flows is large and positive. We obtain similar results for a set of synthetic funds that invest in small cap stocks. Ignoring variation in PE discount rates can lead to a misallocation of capital.

Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/jofi.13202

Related works:
Working Paper: Discount Rate Risk in Private Equity: Evidence from Secondary Market Transactions (2021)
Working Paper: Discount Rate Risk in Private Equity: Evidence from Secondary Market Transactions (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:78:y:2023:i:2:p:835-885

Ordering information: This journal article can be ordered from
http://www.afajof.org/membership/join.asp

Access Statistics for this article

More articles in Journal of Finance from American Finance Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().