Common Risk Factors of Infrastructure Investments
Journal
Energy Economics
ISSN
0140-9883
ISSN-Digital
1873-6181
Type
journal article
Date Issued
2015-05-01
Author(s)
Abstract
The risk of infrastructure investments is driven by unique factors that cannot be well described by standard asset class factor models. We thus create a nine-factor model based on infrastructure-specific risk exposure, i.e., market risk, size, value, momentum, cash flow volatility, leverage, investment growth, term risk, and default risk. We empirically test our model on a large dataset of U.S. infrastructure stocks in different subsectors (utility, telecommunication, and transportation) and over a long period of time (1983 to 2011). The new factor model is able to capture the variation of infrastructure returns better than the Fama/French three-factor, the Carhart four-factor or the extended Fung/Hsieh eight-factor models. Thus, our model helps to improve the evaluation of infrastructure funds and to better determine the cost of capital of infrastructure firms, something that is increasingly relevant in light of the growing need for privately financed infrastructure projects.
Language
English
Keywords
Infrastructure
Asset class
Factor model
Fama/French factors
Leverage
Cash flow volatility
Investment factor
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Elsevier
Publisher place
Amsterdam
Volume
49
Start page
257
End page
273
Pages
17
Subject(s)
Division(s)
Eprints ID
239866