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

See all articles by Dmitry Bazhutov

Dmitry Bazhutov

BUW - Schumpeter School of Business and Economics

André Betzer

University of Wuppertal - Schumpeter School of Business and Economics

Richard Stehle

Humboldt University of Berlin - School of Business and Economics

Date Written: July 28, 2021

Abstract

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

Bazhutov, Dmitry and Betzer, André and Stehle, Richard, Beta Estimation in the European Network Regulation Context: What Matters, What Doesn’t, What Is Indispensable (July 28, 2021). Available at SSRN: https://ssrn.com/abstract=3704537 or http://dx.doi.org/10.2139/ssrn.3704537

Dmitry Bazhutov

BUW - Schumpeter School of Business and Economics ( email )

Gaußstraße 20
42097 Wuppertal
Germany

André Betzer (Contact Author)

University of Wuppertal - Schumpeter School of Business and Economics ( email )

Gaußstraße 20
Wuppertal
Germany

HOME PAGE: http://finance.uni-wuppertal.de/index.php?id=1153

Richard Stehle

Humboldt University of Berlin - School of Business and Economics ( email )

Spandauer Str. 1
Berlin, D-10099
Germany
+49-30-2093-5761 (Phone)
+49-30-2093-5666 (Fax)

HOME PAGE: http://www.wiwi.hu-berlin.de/professuren/bwl/bb/

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