The Private Equity Premium Puzzle

51 Pages Posted: 21 Feb 2001

See all articles by Annette Vissing-Jorgensen

Annette Vissing-Jorgensen

Federal Reserve Board; National Bureau of Economic Research (NBER)

Tobias J. Moskowitz

AQR Capital; Yale University, Yale SOM; National Bureau of Economic Research (NBER)

Date Written: November 2000

Abstract

We document that investment in private equity is extremely concentrated. Yet despite the very poor diversification of entrepreneurs' portfolios, we find that the returns to private equity are surprisingly low. Given the large premium required by investors in public equity, it is puzzling why households willingly invest substantial amounts in a single privately held firm with a far worse risk-return tradeoff. We examine various explanations and conclude that private nonpecuniary benefits of control must be large and/or entrepreneurs must greatly overestimate their probability of success in order to explain the observed concentration of wealth in private equity.

Suggested Citation

Vissing-Jorgensen, Annette and Moskowitz, Tobias J. and Moskowitz, Tobias J., The Private Equity Premium Puzzle (November 2000). Available at SSRN: https://ssrn.com/abstract=252310 or http://dx.doi.org/10.2139/ssrn.252310

Annette Vissing-Jorgensen

Federal Reserve Board ( email )

20th Street and Constitution Avenue NW
Washington, DC 20015
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Tobias J. Moskowitz (Contact Author)

AQR Capital ( email )

Greenwich, CT
United States

Yale University, Yale SOM ( email )

493 College St
New Haven, CT CT 06520
United States

HOME PAGE: http://som.yale.edu/tobias-j-moskowitz

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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