Valuation Dynamics of Private Investments

Department: Finance

Speaker: Morten Sorensen (Tuck School of Business at Darmouth)

Room: TBD

Abstract

We develop and estimate an empirical model of private investments to capture that: (1) Valuations are unobserved (latent) until exit, (2) Exit time is endogenous, (3) Valuations can compound gradually over the holding period but also jump at inception and exit, (4) Deals fail endogenously, with a near-zero exit value. We use a Bayesian MCMC/Gibbs-Sampling procedure to estimate the model for buyout, real estate, and distressed-debt investments.