Conditional Pricing Model With Heteroscedasticity: Evaluation of Brazilian Funds

Abstract

Empirical studies have revealed that the conditional Capital Asset Pricing Model (CAPM) has a higher explanatory power than its unconditional version, particularly for the model in state-space form where the beta is estimated using Kalman filter. Most empirical analyses are based on stock portfolios to explain financial anomalies, but only a few studies proposed improving investment fund performance. The main contribution of this study is the assessment of Brazilian investment funds through traditional measures estimated from the CAPM model in state-space form with heteroscedastic and homoscedastic errors compared to alternative models, such as the unconditional CAPM and a four-factor model. Using a sample of stock funds from May 2005-April 2015, the results indicate that the conditional CAPM model produces better results than the alternative models, providing better performance evaluation practices for funds in both stock-picking and market-timing ability.

Untitled

“…Ellos aplican este modelo a microempresas de fabricación en México. Santos et al (2019) aplicaron el CAPM para analizar los fondos de inversión brasileños, comparados con modelos alternativos tales como el CAPM incondicional y el modelo de cuatro factores.…”

Capital Asset Pricing Model (CAPM) applied to the corporate sector of Ecuador

“…Ellos aplican este modelo a microempresas de fabricación en México. Santos et al (2019) aplicaron el CAPM para analizar los fondos de inversión brasileños, comparados con modelos alternativos tales como el CAPM incondicional y el modelo de cuatro factores.…”