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Cost of Capital and Regulator’s Preferences: Investigation into a new method of estimating regulatory bias


  • Sancetta, A.
  • Satchell, S.E.


When computing regulated prices, the standard method is the capital asset pricing model (CAPM) which involves the estimation of a single parameter: the beta of the company. Yet, these computational methods fail to take into account any preference the regulator might have to increase or decrease the beta to favour or punish investors or customers. We propose such a methodology based on what we call a Linex linear optimal method.

Suggested Citation

  • Sancetta, A. & Satchell, S.E., 2004. "Cost of Capital and Regulator’s Preferences: Investigation into a new method of estimating regulatory bias," Cambridge Working Papers in Economics 0441, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:0441
    Note: EM

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    References listed on IDEAS

    1. Elliott, Graham & Timmermann, Allan, 2004. "Optimal forecast combinations under general loss functions and forecast error distributions," Journal of Econometrics, Elsevier, vol. 122(1), pages 47-79, September.
    2. Blume, Marshall E, 1975. "Betas and Their Regression Tendencies," Journal of Finance, American Finance Association, vol. 30(3), pages 785-795, June.
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    More about this item


    cost of capital; CAPM; linear predictor; linex;

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

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