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


Type
Working Paper
Change log
Authors
Sancetta, Alessio 
Satchell, Stephen E. 
Abstract

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.

Description
Keywords
cost of capital, CAPM, linear predictor, linex
Is Part Of
Sponsorship
ESRC research award 000-23-0400