On Thursday 27 August 2020 the AER published our draft working paper on CAPM and alternative return on equity models. The working paper seeks to:

• Compare and evaluate the strengths and weaknesses of the Capital Asset Pricing Model (CAPM) and a number of alternative return on equity models.
• Identify options for how these model/s might be used.
• Seek submissions on the use of these models to inform the return on equity.

To help us understand finance theory and practice, we commissioned expert advice from Professors Graham Partington and Stephen Satchell.

There are areas of overlap between this paper and our second draft working paper, on International regulatory approaches to the rate of return. We have published the two working papers simultaneously (together with the expert reports accompanying each) so that stakeholders can consider the links between them.

We invited interested parties to make submissions on our draft working paper on CAPM and alternative return on equity models. Submissions closed on 9 October 2020. This submission period coincided with our submission period for our draft working paper on International regulatory approaches to rate of return. Many parties responded to both working papers in a single submission.

We received four submissions after the closing date.

On 16 September 2020 we hosted an online forum to present key points from our draft working paper and hear some stakeholder perspectives on the issues. This was a joint forum that also covered our working paper on International regulatory approaches to rate of return.

The AER would like to thank those who presented at the forum, as well as those who were able to attend on the day to listen to the views of other stakeholders.