While the theory of the Black CAPM should allow the model Estimates from other regulators may to accommodate changing not always reflect prevailing market Sufficiently flexible as to allow market conditions, the conditions, as there may be a delay changing market conditions We can always update the We can always update the difficulties in estimating the between when the corresponding and new information to be Not applicable empirical estimates to take into empirical estimates to take into zero beta return are magnified decisions are made. As such, these reflected in regulatory account the latest market data. account the latest market data. when attempting to match estimates may not be sufficiently outcomes, as appropriate current market conditions flexible to allow changing market (instead of an average figure conditions to be reflected. over many years).
Sufficiently flexible as to allow changing market conditions and new information to be reflected in regulatory outcomes, as appropriate Not applicable We can always update the empirical estimates to take into account the latest market data. We can always update the empirical estimates to take into account the latest market data. While the theory of the Black CAPM should allow the model to accommodate changing market conditions, the difficulties in estimating the zero beta return are magnified when attempting to match current market conditions (instead of an average figure over many years). Estimates from other regulators may not always reflect prevailing market conditions, as there may be a delay between when the corresponding decisions are made. As such, these estimates may not be sufficiently flexible to allow changing market conditions to be reflected.
AER%20-%20equity%20beta%20issues%20paper%20-%20rate%20of%20return%20guideline%20-%20October%202013.docx