**The equity beta (** β **_e_ )** measures the relative risk of the company’s equity compared to the market as a whole. In other words, the risk premium investors require for taking on a riskier investment varies in direct proportion to its beta. Betas are estimated regularly by numerous specialized private companies. Some companies use a simple covariance method, based on historical stock prices, to get a _historical beta_ .<sup>6</sup> Although some studies have shown that betas appear reasonably stable (see Sharpe and Cooper 1972), historical betas are imperfect guides to the future because a stock’s market risk can change considerably. Accordingly, some other companies, such as Barra,<sup>7</sup> use more forward-looking methodologies—adjusting historical betas to take into account forward-looking quantitative and qualitative information about the stock and its environment (including the regulatory framework). The results, called _predicted_ or _fundamental betas_ , are considered superior to historical betas because they incorporate new information that may influence the stock’s future volatility. Thus they are better predictors of an asset’s future response to market movements which is why we used them here. But companies such as Barra do not calculate betas for nontraded companies or for small companies with limited liquidity, especially in emerging markets. Therefore, one must use proxies. We proxied the betas of our sample concessions using the average predicted betas estimated by Barra for U.S. companies operating in the same sectors.<sup>8</sup> The resulting betas are summarized in Table 2. The average betas are less than 1 for all the infrastructure sectors considered in this paper analysis. That means that stocks of companies in those sectors are usually less volatile than the market, so investments in those sectors are less risky than in sectors with higher betas. This reflects the fact that these sectors enjoy more stable economics—particularly more stable demand—than do other sectors.

**Table 2: Sector Specific Betas**

|**Average**<br>**Unleveraged Betas**|**1998**|**1999**|**2000**|**2001**|**2002**|
|---|---|---|---|---|---|
|**Electricity**|0.46|0.36|0.36|0.31|0.36|
|**Water & Sanitation**|0.42|0.36|0.51|0.34|0.31|
|**Railroad**|0.82|0.66|0.53|0.53|0.55|
|**Ports**|0.41|0.41|0.41|0.41|0.41|

Source:Barra betas by sector Note: For ports, we used the betas for maritime transport To isolate the risks resulting from a company’s financing structure from its fundamental business risk, betas are usually calculated assuming that the company has a

> 6 A stock’s relative volatility is measured as the ratio of the covariance between the stock’s and the market’s return divided by the variance of the market’s return.

> 7 Barra, a U.S. company founded in 1975, became famous for its multifactor model for measuring the risk of stock portfolios. Its estimates of betas are used by many investment banks and stock brokers.

> 8 European companies were used when Barra’s data for U.S. companies were insufficient. For instance, Barra’s data do not separate U.S. energy distributors and generators. So, its data for European energy companies were used.

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