Conditional CAPM: Time-varying Betas in the Brazilian Market

Conditional CAPM: Time-varying Betas in the Brazilian Market

The conditional CAPM is characterized by time-varying market beta. Based on state-space models approach, beta behavior can be modeled as a stochastic process dependent on conditioning variables related to business cycle and estimated using Kalman filter. This paper studies alternative models for por...

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Bibliographic Details
Main Authors: Frances Fischberg Blank, Carlos Patricio Samanez, Tara Keshar Nanda Baidya, Fernando Antonio Lucena Aiube
Format: Article
Language:English
Published: Brazilian Society of Finance 2014-10-01
Series:Revista Brasileira de Finanças
Subjects:
beta behavior can be modeled as a stochastic process dependent on conditioning variables related to business cycle and estimated using Kalman filter. This paper studies alternative models for portfolios sorted by size and book-to-market ratio in the Brazilian stock market and compares their adjustment to data. Asset pricing tests based on time-series and cross-sectional approaches are also implemented. A random walk process combined with conditioning variables is the preferred model
reducing pricing errors compared to unconditional CAPM
but the errors are still significant. Cross-sectional test show that book-to-market ratio becomes less relevant
Conditional CAPM
time-varying beta
stock market anomalies
Kalman filter
Online Access:http://bibliotecadigital.fgv.br/ojs/index.php/rbfin/article/viewFile/13942/33951

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http://bibliotecadigital.fgv.br/ojs/index.php/rbfin/article/viewFile/13942/33951

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