Estimating illiquid asset class alpha and beta using secondary transaction prices

Godwin, Alexander (2022): Estimating illiquid asset class alpha and beta using secondary transaction prices.

Abstract

This paper introduces a novel method for estimating the true economic alpha and market beta of illiquid asset classes using secondary transaction prices. Furthermore, this approach can be used to measure the degree of stale pricing in the reported returns of such asset classes. We apply this methodology to private equity, venture capital, private real estate, and private natural resource asset classes. A significant degree of stale pricing was found with estimates of market beta significantly higher than those obtained using reported returns for all four of the asset classes considered. No asset class exhibited statistically significant positive alpha.

• Item Type: MPRA Paper
• Language: English
• Keywords: private equity; venture capital; real estate; natural resources; secondary transactions; alternative investments; illiquid investments; risk; beta; alpha; volatility; stale pricing
• Subjects: G - Financial Economics > G1 - General Financial Markets > G10 - General; G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions; G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates

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