This paper models the London stock market's response to the 1994 Periodic Review of prices in the English and Welsh water industry using both GARCH and stochastic volatility models. The results indicate that a significant reduction in the volatility of share prices for eight of the ten water and sewerage companies followed the announcement of revised industry price-caps. Investor expectations adjusted rapidly, reflecting confidence in the credibility and political sustainability of the settlement.
Morana, C., Sawkins, J. (2000). Regulatory ucertainty and share price volatility: the water industry's periodic price review. JOURNAL OF REGULATORY ECONOMICS, 17(1), 87-100 [10.1023/A:1008105405621].
Regulatory ucertainty and share price volatility: the water industry's periodic price review
Morana, C;
2000
Abstract
This paper models the London stock market's response to the 1994 Periodic Review of prices in the English and Welsh water industry using both GARCH and stochastic volatility models. The results indicate that a significant reduction in the volatility of share prices for eight of the ten water and sewerage companies followed the announcement of revised industry price-caps. Investor expectations adjusted rapidly, reflecting confidence in the credibility and political sustainability of the settlement.
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