Abstract
In this work a stochastic fomulation of the CAPM (Capital Market Pricing Model) called CAPMVAR, is presented. In the proposed fomulation the coefficients α and β of the model follow a first order vector autoregressive process, which parameters are estimated with the Kalman Filter. The hyper-parameters of the model are estimated using the EM algorithm. The model is tested using two series of daily returns from the Brazilian financial market.
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