Beta Estimation in the European Network Regulation Context: What Matters, What Doesn’t, What Is Indispensable
51 Pages Posted: 9 Oct 2020 Last revised: 29 Jul 2021
Date Written: July 28, 2021
Our study deals with the process of beta estimation and focuses on companies which are subject to European network regulation. Our most important conclusions are: (1) Sudden beta increases or decreases occur that often last only short periods of time and may therefore cause a significant misestimation of the future beta. (2) Three- and especially five-year betas are much more stable than one-year betas. (3) The choice between purely local, European or global betas may matter considerably. (4) Weekly or daily betas seem to be better than monthly ones. (5) Vasicek and Blume adjustments towards one lead to beta predictions that are too high.
Keywords: Cost of capital, Beta, Coronavirus, Regulated firms
JEL Classification: C52, G12, L94, L95, L96
Suggested Citation: Suggested Citation