Cost of Capital and Regulator’s Preferences: Investigation into a new method of estimating regulatory bias
Satchell, Stephen E.
Cambridge Working Papers in Economics
Faculty of Economics
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Sancetta, A., & Satchell, S. E. (2004). Cost of Capital and Regulator’s Preferences: Investigation into a new method of estimating regulatory bias. https://doi.org/10.17863/CAM.5445
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.
cost of capital, CAPM, linear predictor, linex
ESRC research award 000-23-0400
This record's DOI: https://doi.org/10.17863/CAM.5445
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