2025 Theses Doctoral

Essays in Asset Pricing and Private Equity

Huber, Jeremias

This dissertation includes three essays in asset pricing and private equity.

In the first chapter, Factor Model Selection Using the ICAPM, which is joint work with Paul Glasserman and Harry Mamaysky, we extend the factor model ICAPM consistency test of Maio and Santa-Clara 2012, using market data together with household-level consumption data. We find that more consistent factor models have less persistent alphas, and more stable betas and out-of-sample mean squared errors. We propose a novel statistical test for the sign of the consistency-stability relationship across many factor models and over time. Our methodology allows for the efficient identification of the historically most ICAPM-consistent factor models and factors from a large candidate pool. Our results suggest that historically consistent models are likely to be stable in the future.

In the second chapter, Venture Capital Risk: Theoretical Foundations, I provide theoretical foundations for VC-specific risk factors which capture domain-specific risk exposures of venture capital general partners (GPs). Particularly, I asks why GPs on aggregate make more intangible and more specialized investments during some times but not others in the context of a portfolio choice model, and what implications such aggregate investment behavior has for risk and returns. I argue that while making highly intangible or strongly sector-focused investments can prove profitable in good times, it simultaneously increases the potential for large losses during downturns. As the upside is tied to GPs’ expert knowledge, who can detect value in new technologies in ways which remain hard to replicate for outsiders, achieving it remains subject to asymmetric information leading to a limited willingness to share risk by less informed limited partners especially during downturns. Consequently, if such investments collectively amplify the cyclicality of the VC sector and endogenously increase risk during downturns, then rational GPs must be compensated on average for taking on such risk.

In the third chapter, Venture Capital Risk: Empirical Evidence, I empirically test the existence of VC-specific risk factors using deal-level VC returns. In order to achieve this, I introduce empirical proxies that capture the aggregate intangibility intensity of VC and the degree of technology sector specialization. Using these proxies and after accounting for public market exposure, I find evidence that GPs earn higher returns on average, when making more intangible or sector-focused investments, which is consistent with the theoretical arguments. Specifically, I find that startup investments associated with higher levels of intangibility and a strong sector focus tend to yield higher round-to-exit returns and are more likely to achieve successful exits through acquisitions or initial public offerings.