The Impact of Regulation on Market Risk

46 Pages Posted: 21 May 2005

See all articles by Paul A. Grout

Paul A. Grout

University of Bristol - Leverhulme Centre for Market and Public Organisation (CMPO)

Anna (Ania) Zalewska

University of Leicester School of Business

Abstract

It is crucial to understand the impact of changes in regulation on market risk but there is no literature showing how risk responds to expected changes in regulation that are specifically designed to change risk. This paper fills this gap by providing a detailed study of one such case. Using a sample of privatized UK companies, and UK and US control samples, between 1993 and 2000 we show (both for the single factor market model and the three factor Fama-French model) that the changes in risk in the market are both significant and consistent with theory.

Keywords: Regulation, Time-varying risk, Kalman filter, Asset pricing

JEL Classification: G1, G38, L5

Suggested Citation

Grout, Paul A. and Zalewska, Anna, The Impact of Regulation on Market Risk. Journal of Financial Economics, Vol. 80, No. 1, pp. 149-184, Available at SSRN: https://ssrn.com/abstract=726121

Paul A. Grout

University of Bristol - Leverhulme Centre for Market and Public Organisation (CMPO) ( email )

Mary Paley Building
12 Priory Road Department of Economics
Bristol BS8 1TN
United Kingdom

Anna Zalewska (Contact Author)

University of Leicester School of Business ( email )

United Kingdom

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