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Regulation Effects on Company Beta Components

Author

Listed:
  • Stefano Paleari
  • Renato Redondi

Abstract

This paper introduces a general model to analyze the effects of regulation on company risk. In particular, we consider two determinants of systematic risk: the company’s overall risk and the correlation between the regulated company’s value and the market. Theoretical findings indicate that as regulation gets stricter, the company’s abnormal returns will turn negative, whereas the two systematic risk components will increase, and vice versa. We use event analysis elements and a time-varying beta estimation to verify the regulation impact on risk and returns in the English electricity distribution industry. We find that systematic risk varies significantly during the period considered in our analysis. Furthermore, the analysis points to negative relationships between abnormal returns and both market correlation and overall risk variations.

Suggested Citation

  • Stefano Paleari & Renato Redondi, 2005. "Regulation Effects on Company Beta Components," Working Papers 0502, Department of Management, Information and Production Engineering, University of Bergamo.
    • Handle: RePEc:brh:wpaper:0502
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    File URL: http://hdl.handle.net/10446/441
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    Citations

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    Cited by:

    1. Frédéric Cherbonnier & Christian Gollier, 2022. "Risk-adjusted Social Discount Rates," Post-Print hal-04012977, HAL.
    2. Kashi, Bahman, 2015. "Risk management and the stated investment costs by independent power producers," Energy Economics, Elsevier, vol. 49(C), pages 660-668.
    3. Bahman Kashi, 2014. "Risk Management and the Stated Capital Costs by Independent Power Producers," Development Discussion Papers 2014-03, JDI Executive Programs.

    More about this item

    Keywords

    Price cap; Beta; Event Analysis; Kalman filter;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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