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Market Model Stationarity of Individual Public Utilities

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  • Bey, Roger P.

Abstract

The search for an economically sound procedure for estimating an appropriate rate of return on equity consistent with the Supreme Court's ruling in the Hope case [13] has led many economists, financial experts, and public service commissions to estimate the rate of return on equity with the capital asset pricing model (CAPM) (see [30], [19], and [21]). The popularity of the CAPM in regulatory proceedings was reported by Harrington [15] who, in a survey of public service commissions, found that 38 states were considering or had seen the CAPM used, two jurisdictions preferred the CAPM, Oregon required the CAPM, and South Carolina would require the CAPM in all future cases. Hence, given the popularity of the CAPM and the tremendous economic impact that outcomes of regulatory proceedings have on the financial well-being of both the regulated firm and the consumer, it is critical that if the CAPM is used in regulatory proceedings that it be applied in the best manner possible and that any limitations associated with the CAPM be recognized fully.

Suggested Citation

  • Bey, Roger P., 1983. "Market Model Stationarity of Individual Public Utilities," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 18(1), pages 67-85, March.
    • Handle: RePEc:cup:jfinqa:v:18:y:1983:i:01:p:67-85_01
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    Cited by:

    1. Roger Buckland & Julian Williams & Janice Beecher, 2015. "Risk and regulation in water utilities: a cross-country comparison of evidence from the CAPM," Journal of Regulatory Economics, Springer, vol. 47(2), pages 117-145, April.
    2. Saban Celik, 2012. "Theoretical and Empirical Review of Asset Pricing Models:A Structural Synthesis," International Journal of Economics and Financial Issues, Econjournals, vol. 2(2), pages 141-178.
    3. Abdul Rahman & Lawrence Kryzanowski & Ah Boon Sim, 1987. "Systematic Risk In A Purely Random Market Model: Some Empirical Evidence For Individual Public Utilities," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 10(2), pages 143-152, June.
    4. Kayo, Eduardo K. & Martelanc, Roy & Brunaldi, Eduardo O. & da Silva, Walter E., 2020. "Capital asset pricing model, beta stability, and the pricing puzzle of electricity transmission in Brazil," Energy Policy, Elsevier, vol. 142(C).
    5. Buckland, Roger & Fraser, Patricia, 2002. "The scale and patterns of abnormal returns to equity investment in UK electricity distribution," Global Finance Journal, Elsevier, vol. 13(1), pages 39-62.
    6. Bill McDonald & William D. Nichols, 1984. "Nonstationarity Of Beta And Tests Of Market Efficiency," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 7(4), pages 315-322, December.
    7. James Mcdonald & Richard Michelfelder & Panayiotis Theodossiou, 2010. "Robust estimation with flexible parametric distributions: estimation of utility stock betas," Quantitative Finance, Taylor & Francis Journals, vol. 10(4), pages 375-387.

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