American Economic Review Vol. 92 No. 4 2002

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

Tobias J. Moskowitz¹; Annette Vissing-Jørgensen²

¹ Graduate School of Business, University of Chicago, 1101 East 58th Street, Chicago, IL 60637, and National Bureau of Economic Research. · ² Department of Economics, University of Chicago, 1126 East 59th Street, Chicago, IL 60637, Center for Economic Policy Research, and NBER.

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 trade-off. 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.

DOI

10.1257/00028280260344452

Volume

92

Issue

4

Pages

745-778

Language

en

Sources

crossref openalex bibtex:phds-export.bib

Cite

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