The structural stability of the market model after the Three Mile Island accident

This article examines the stability of alpha and beta in the market model resulting from the Three Mile Island accident. The data consist of weekly returns on 70 utility stocks. Both a dummy variable test and the Fisher F statistics are utilized to test for stability. In addition to the individual stocks, the 70 utilities are partitioned into two portfolios for the test—nuclear and non-nuclear. The main conclusions are 1) for the non-nuclear portfolio, no change is observed; 2) for the nuclear portfolio, alpha fell and beta rose—the impact, however, is transitory and insignificant; and 3) the behavior of the residuals suggests that the result is consistent with an efficient market.