Journal article

Estimating risk premiums for regulated firms when accounting for reference-day variation and high-order moments of return volatility

J Hirschberg, J Lye

Environment Systems and Decisions | Springer Science and Business Media LLC | Published : 2021

Abstract

In many jurisdictions, the determination of the acceptable rate of return for the assets of a regulated utility is based partially on the Capital Asset Pricing Model (CAPM) to determine risk premia. However, the traditional estimation of CAPM can be criticized for not including considerations of reference-day risk as well as the higher moments of the rates of return. In this paper, we attempt to account for both the potential variation induced by the definition of specific reference days and the higher moments of rates of return in the estimates of Beta. This paper provides a new methodology to account for reference-day variation. We construct a set of pseudo-monthly rates of return to ident..

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