Returns to Private Equity: Idiosyncratic Risk Does Matter!

Elisabeth Müller
Authors registered in the RePEc Author Service: Elisabeth Mueller

No 04-29 [rev.], ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: Owners of private companies often invest a substantial share of their net worth in one company, which exposes them to idiosyncratic risk. For US companies we investigate whether owners require compensation for lack of diversification in the form of higher returns to equity. Exposure to idiosyncratic risk is measured as the share of the owner's net worth invested in the company. Equity returns are measured as the earnings rate and as capital gains. For both returns measures we find a positive and significant influence of exposure to idiosyncratic risk. This paper improves our understanding of returns to private equity.

Keywords: returns to private equity; exposure to idiosyncratic risk; private companies (search for similar items in EconPapers)
JEL-codes: G11 G32 L26 (search for similar items in EconPapers)
Date: 2007
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https://www.econstor.eu/bitstream/10419/24691/1/dp0429.pdf (application/pdf)

Related works:
Journal Article: Returns to Private Equity - Idiosyncratic Risk Does Matter! (2010)
Working Paper: Returns to private equity: idiosyncratic risk does matter! (2009)
Working Paper: Returns to private equity: idiosyncratic risk does matter! (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:7177

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