Journal of Financial and Quantitative Analysis Vol. 47 No. 3 2012
A New Method to Estimate Risk and Return of Nontraded Assets from Cash Flows: The Case of Private Equity Funds
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.
- DOI
- 10.1017/s0022109012000221
- Volume
- 47
- Issue
- 3
- Pages
- 511-535
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref