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- Title
A New Method to Estimate Risk and Return of Nontraded Assets from Cash Flows: The Case of Private Equity Funds.
- Authors
Driessen, Joost; Lin, Tse-Chun; Phalippou, Ludovic
- Abstract
We develop a new methodology to estimate abnormal performance and risk exposure of nontraded assets from cash flows. Our methodology extends the standard internal rate of return approach to a dynamic setting. The small-sample properties are validated using a simulation study. We apply the method to a sample of 958 private equity funds. For venture capital funds, we find a high market beta and underperformance before and after fees. For buyout funds, we find a relatively low market beta and no evidence for outperformance. We find that self-reported net asset values significantly overstate fund values for mature and inactive funds.
- Subjects
RISK assessment; NONTRADED goods; CASH flow; PRIVATE equity funds; INTERNAL rate of return; SIMULATION methods &; models; VENTURE capital; BETA (Finance)
- Publication
Journal of Financial & Quantitative Analysis, 2012, Vol 47, Issue 3, p511
- ISSN
0022-1090
- Publication type
Article
- DOI
10.1017/S0022109012000221