The Scale and Patterns of Abnormal Returns to Equity Investment in UK Electricity Distribution

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3 Citations (Scopus)

Abstract

This article explores the scale and behaviour of abnormal equity returns for 12 regional electricity companies (RECs) in the UK. Using the Capital Asset Pricing Model (CAPM) and the Kalman Filter, we estimate time variation in abnormal returns (alpha) and in systematic risk (beta) coefficients. Substantial time variation in both returns and risk is demonstrated, with strong evidence of regulatory and political impacts. The article confirms that significant excess returns have been generated in privatised electricity distribution in the UK. It also suggests that overestimation of systematic risk faced by investors may imply further excess returns in the next regulatory review period.
Original languageEnglish
Pages (from-to)39-62
Number of pages23
JournalThe Global Finance Journal
Volume13
Issue number1
Early online date5 Feb 2002
DOIs
Publication statusPublished - 2002

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Time variation
Electricity distribution
Systematic risk
Abnormal returns
Excess returns
Equity
Equity returns
Risk and return
Capital asset pricing model
Investors
Coefficients
Kalman filter
Electricity

Keywords

  • utilities regulation
  • time-varying risk
  • Kalman filter
  • CAPM

Cite this

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title = "The Scale and Patterns of Abnormal Returns to Equity Investment in UK Electricity Distribution",
abstract = "This article explores the scale and behaviour of abnormal equity returns for 12 regional electricity companies (RECs) in the UK. Using the Capital Asset Pricing Model (CAPM) and the Kalman Filter, we estimate time variation in abnormal returns (alpha) and in systematic risk (beta) coefficients. Substantial time variation in both returns and risk is demonstrated, with strong evidence of regulatory and political impacts. The article confirms that significant excess returns have been generated in privatised electricity distribution in the UK. It also suggests that overestimation of systematic risk faced by investors may imply further excess returns in the next regulatory review period.",
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AB - This article explores the scale and behaviour of abnormal equity returns for 12 regional electricity companies (RECs) in the UK. Using the Capital Asset Pricing Model (CAPM) and the Kalman Filter, we estimate time variation in abnormal returns (alpha) and in systematic risk (beta) coefficients. Substantial time variation in both returns and risk is demonstrated, with strong evidence of regulatory and political impacts. The article confirms that significant excess returns have been generated in privatised electricity distribution in the UK. It also suggests that overestimation of systematic risk faced by investors may imply further excess returns in the next regulatory review period.

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