Capital Asset Pricing Model and Changes in Volatility
AbstractThis 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.
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Bibliographic InfoPaper provided by International Center for Financial Asset Management and Engineering in its series FAME Research Paper Series with number rp4.
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Creation-Date : 1998-09;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-02-12 (All new papers)
- NEP-BEC-2006-02-12 (Business Economics)
- NEP-FMK-2006-02-12 (Financial Markets)
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