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

Alessio Sancetta and Steve Satchell

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

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.

Keywords: cost of capital; CAPM; linear predictor; linex (search for similar items in EconPapers)
JEL-codes: C13 L50 (search for similar items in EconPapers)
Pages: 22
Date: 2004-07
New Economics Papers: this item is included in nep-acc and nep-reg
Note: EM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:0441

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