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Abnormal stock returns and public policy: the case of the UK privatised electricity and water utilities
Author(s) -
Antoniou A.,
Barr D.G.,
Priestley R.
Publication year - 2000
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/(sici)1099-1158(200004)5:2<93::aid-ijfe124>3.0.co;2-t
Subject(s) - economics , stock (firearms) , capital asset pricing model , financial economics , monetary economics , mechanical engineering , engineering
In common with privatisation issues around the world, those of UK utilities have earned very high returns on a continuing basis. This presents an asset pricing puzzle and has been used as a justification for the imposition of a ‘windfall’ tax. This paper presents a framework for analysing the composition of these returns and for judging the extent to which they can be regarded as abnormal . It provides evidence that even the existence of abnormal returns depends crucially on the assumptions made with regard to their measurement. A general model that allows for time variation in investors' perceptions of risk reveals that the extent of the abnormal returns is much smaller than first thought, being present in only very few companies. In most cases, the observed high stock returns appear to be a reward for bearing risk and should not be regarded as abnormal. Copyright © 2000 John Wiley & Sons, Ltd.