Do Regulatory Changes Affect Market Risk?

Understanding the impact of changes in regulation on market risk is crucial but there is no literature giving clear evidence that market risk responds to expected changes in regulation designed to change risk (mostly because of a dearth of cases where the risk effect is isolated). This paper helps fill this gap by providing a detailed study of one such case. Using a sample of 15 privatized UK companies and a (18 company) comparator sample between 1993 and 2000 we show that the time-varying nature of risk in the market at that time was fully consistent with underlying theory