The Impact of Regulation on Market Risk

It is crucial to understand the impact of changes in regulation on market risk but there is no literature showing how risk responds to expected changes in regulation that are specifically designed to change risk. This paper fills this gap by providing a detailed study of one such case. Using a sample of privatized UK companies, and UK and US control samples, between 1993 and 2000 we show (both for the single factor market model and the three factor Fama-French model) that the changes in risk in the market are both significant and consistent with theory