benchmark efficient entity, it refer to foreign proxies. Foreign would be reasonable to quantify proxies are likely to be subject to the impacts of these differences different regulatory, geographic, for the benchmark efficient and to make necessary economic conditions. Ideally, the entity is below the market adjustments. However, it is impact of these differences should be average. difficult to make such quantified and adjusted for. However, adjustments in a robust and it is difficult to make such adjustments transparent manner. in a robust and transparent manner. Where models of the return on equity and debt are used these OLS and LAD are commonly used are regression techniques to OLS and LAD are commonly used estimate the equity beta. on quantitative modelling regression techniques to Further, the ERA introduced two that is sufficiently robust as to estimate the equity beta. There new techniques, which produced The Black CAPM is sensitive to not be unduly sensitive to was no arbitrary adjustment to Not applicable consistent empirical estimates. errors in the estimation of the Not applicable errors in inputs estimation the data. Instead, we consider There was no arbitrary zero beta return. estimates from different based on quantitative adjustment to the data; instead comparator sets and different modelling which avoids we consider estimates from time periods. different comparator sets and arbitrary filtering or adjustment of data, which does different time periods. not have a sound rationale Estimates from other regulators may not always be directly comparable to our estimates due to differences in market data and other the estimation approach. In particular, information is used, this other regulators do not always use a information is benchmark efficient entity that is Market data used for domestic Market data used for consistent with our definition. Not applicable empirical estimation this international empirical Not applicable credible and verifiable criterion. estimation meets this criterion. However, water regulators will often comparable and timely provide robust reasoning and clearly clearly sourced specify the data used for estimating their equity betas. In this respect, this data is usually verifiable and clearly sourced.
for the benchmark efficient entity is below the market average. benchmark efficient entity, it would be reasonable to quantify the impacts of these differences and to make necessary adjustments. However, it is difficult to make such adjustments in a robust and transparent manner. refer to foreign proxies. Foreign proxies are likely to be subject to different regulatory, geographic, economic conditions. Ideally, the impact of these differences should be quantified and adjusted for. However, it is difficult to make such adjustments in a robust and transparent manner. Where models of the return on equity and debt are used these are on quantitative modelling that is sufficiently robust as to not be unduly sensitive to errors in inputs estimation based on quantitative modelling which avoids arbitrary filtering or adjustment of data, which does not have a sound rationale Not applicable OLS and LAD are commonly used regression techniques to estimate the equity beta. Further, the ERA introduced two new techniques, which produced consistent empirical estimates. There was no arbitrary adjustment to the data; instead we consider estimates from different comparator sets and different time periods. OLS and LAD are commonly used regression techniques to estimate the equity beta. There was no arbitrary adjustment to the data. Instead, we consider estimates from different comparator sets and different time periods. The Black CAPM is sensitive to errors in the estimation of the zero beta return. Not applicable market data and other information is used, this information is credible and verifiable comparable and timely clearly sourced Not applicable Market data used for domestic empirical estimation this criterion. Market data used for international empirical estimation meets this criterion. Not applicable Estimates from other regulators may not always be directly comparable to our estimates due to differences in the estimation approach. In particular, other regulators do not always use a benchmark efficient entity that is consistent with our definition. However, water regulators will often provide robust reasoning and clearly specify the data used for estimating their equity betas. In this respect, this data is usually verifiable and clearly sourced.
AER%20-%20equity%20beta%20issues%20paper%20-%20rate%20of%20return%20guideline%20-%20October%202013.docx