The Returns to Entrepreneurial Investment: A Private Equity Premium Puzzle?

Tobias J. Moskowitz and Annette Vissing-Jorgensen

No 8876, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We document the return to investing in U.S. nonpublicly traded equity. Entrepreneurial investment is extremely concentrated, yet despite its poor diversification, we find that the returns to private equity are no higher than the returns to public equity. Given the large public equity premium, it is puzzling why households willingly invest substantial amounts in a single privately held firm with a seemingly far worse risk-return tradeoff. We briefly discuss how large nonpecuniary benefits, a preference for skewness, or overestimates of the probability of survival could potentially explain investment in private equity despite these findings.

JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 2002-04
New Economics Papers: this item is included in nep-ent
Note: AP CF
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Citations: View citations in EconPapers (589)

Published as Moskowitz, Tobias J. and Annette Vissing-Jørgensen. “The Returns to Entrepreneurial Investment: A Private Equity Premium Puzzle?" American Economic Review 92, 4 (2002): 745-778.

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