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| Author: | Ammann, M. Verhofen, M. |
| Title: | Testing conditional asset pricing models using a Markov Chain Monte Carlo approach |
| Journal: | European Financial Management
2008 : JUN, VOL. 14:3, p. 391-418 |
| Index terms: | credit management assets pricing models risk analysis interest rates Markov chains Monte Carlo technique stochastic processes |
| Freeterms: | Bayesian analysis |
| Language: | eng |
| Abstract: | This study uses Markov Chain Monte Carlo (MCMC) methods for the parameter estimation and the testing of conditional asset pricing models. It is truly conditional due to the assumption that time variation (here as: t-var.) in betas is driven by a set of conditioning variables is not necessary. Based on S&P 500 panel data, the empirical performance of the CAPM and the Fama and French (1993) three-factor model (as: 3-f-m.) is analyzed. It is found that t-v. of betas in the CAPM and the t-v. of the coefficients for the size factor (SMB) and the distress factor (HML) in the 3-f-m. improve the empirical performance. |
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