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Regulatory Risk [Draft version]
Assets with a value of over $130 billion are regulated in Australia. We define regulatory risk as being regulation that increases the cost of servicing this capital and analyse the sources of this risk. We show that unbiased and symmetric errors will generally create asymmetric risk for the firm, that investors cannot fully diversify against this risk, and that the CAPM beta may even fall when it occurs. The paper concludes with recommendations aimed at reducing regulatory risk... more. (pdf, size 97kb)