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Capital Asset Pricing Model and Changes in Volatility

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  • Andre Oliveira SANTOS

    (Graduate Institute of International Studies)

Abstract

This article applies regime-switching models to assess the effects of different regimes of volatility in asset pricing. Different variance-covariance matrices for different regimes of volatility are introduced in the Capital Asset Pricing Model. They are scaled with respect to a conditional variance-covariance matrix that simply follows a GARCH process. The probabilities that U.S. financial markets were in a low, medium, or high regime of volatility from March 1958 to December 1995 are computed.

Suggested Citation

  • Andre Oliveira SANTOS, "undated". "Capital Asset Pricing Model and Changes in Volatility," FAME Research Paper Series rp4, International Center for Financial Asset Management and Engineering.
    • Handle: RePEc:fam:rpseri:rp4
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    File URL: http://www.swissfinanceinstitute.ch/rp4.pdf
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    Cited by:

    1. Tom A. FEARNLEY, 2002. "Tests of an International Capital Asset Pricing Model with Stocks and Government Bonds and Regime Switching Prices of Risk and Intercepts," FAME Research Paper Series rp97, International Center for Financial Asset Management and Engineering.

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    Creation-Date : 1998-09;

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