Umberto Monarca, Giuseppe Surdi

Equity risk premium regulation: a first institutional analysis

  • Abstract

Informations and abstract

Keywords: Regulated Industries; Economics of Regulation; Government Policy and Regulation.

The equity risk premium is a key element of allowed rate of return for regulated infrastructural utilities. Since the 2008 economic and financial crisis, capital markets conditions and macroeconomic imbalances have deeply affected market risk premia and risk free rates, in particular in the Eurozone: new challenges for regulation have arisen as a consequence. We address the recent economic literature on the determinants of equity risk premium, reviewing the main estimation methods adopted by regulators. We briefly analyze national regulation Authorities' approaches to equity risk premium and their recent evolutions. Finally, we conclude with some considerations on the role of equity risk premium in regulatory setup.

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