Risk-adjusting the returns of private equity using the CAPM and multi-factor extensions

Axel Buchner

Finance Research Letters, 2016, vol. 16, issue C, 154-161

Abstract: 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 7732 fully realized venture capital investments, the paper estimates PMEs using the standard CAPM, the Fama–French three-factor model, and a four-factor model that also includes the Pastor–Stambaugh traded liquidity factor. The results highlight that venture capital investments substantially outperform traded stocks and that their returns resemble those of small growth stocks. Additionally, the results show that the exposure of venture capital returns to the traded liquidity factor is negligible.

Keywords: Venture capital; Public Market Equivalent; CAPM; Multi-factor models (search for similar items in EconPapers)
JEL-codes: C58 G12 G23 G24 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S154461231500118X
Full text for ScienceDirect subscribers only

Related works:
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:eee:finlet:v:16:y:2016:i:c:p:154-161

DOI: 10.1016/j.frl.2015.10.023

Access Statistics for this article

Finance Research Letters is currently edited by R. Gençay

More articles in Finance Research Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().