Private Equity Returns in a Model of Entrepreneurial Choice with Learning

@article{Campanale2010PrivateER,
  title={Private Equity Returns in a Model of Entrepreneurial Choice with Learning},
  author={Claudio Campanale},
  journal={The B.E. Journal of Macroeconomics},
  year={2010},
  volume={10}
}
Entrepreneurs invest a large share of their financial wealth in a single business that they personally manage. Despite the large risk implied by this undiversified investment they do not seem to require any extra return on a diversified public equity index. In light of the large public equity premium, this fact poses a new asset pricing puzzle. In the present paper, I use a quantitative model to explore the issue and find that the choice to become entrepreneur can be rationalized even with a… CONTINUE READING