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Contribution to the Valuation of BRVM’s Assets: A Conditional CAPM Approach

Author

Listed:
  • Mamadou Cisse

    (National School of Statistics and Economic Analysis of Dakar, CP 45512 Dakar, Senegal
    These authors contributed equally to this work.)

  • Mamadou Konte

    (Department of Economics, University Gaston Berger of Saint-Louis, Saint-Louis 00234, Senegal
    These authors contributed equally to this work.)

  • Mohamed Toure

    (National School of Statistics and Economic Analysis of Dakar, CP 45512 Dakar, Senegal
    These authors contributed equally to this work.)

  • Smael Afolabi Assani

    (Department of Statistics, University of Montreal, Montreal, QC H3T 1J4, Canada
    These authors contributed equally to this work.)

Abstract

The conditional capital asset pricing model (CAPM) theory postulates that the systematic risk ( β ) of an asset or portfolio varies over time. Several dynamics are thus given to systematic risk in the literature. This article looks for the dynamic that seems to best explain the returns of the assets of the Regional Stock Exchange of West Africa (BRVM) by comparing two dynamics: one by the Kalman filter (assuming that the β follow a random walk) and the other by the Markov switching (MS) model (assuming that β varies according to regimes) for four portfolios of the BRVM. Having found a link between the beta of the market portfolio and the size criterion (measured by capitalization), the two previous models were re-estimated with the addition of the SMB (Small Minus Big) variable. The results show according to the RMSE criterion that the estimation by the Kalman filter fits better than MS, which suggests that investors cannot anticipate systematic risk because of its high volatility.

Suggested Citation

  • Mamadou Cisse & Mamadou Konte & Mohamed Toure & Smael Afolabi Assani, 2019. "Contribution to the Valuation of BRVM’s Assets: A Conditional CAPM Approach," JRFM, MDPI, vol. 12(1), pages 1-15, February.
    • Handle: RePEc:gam:jjrfmx:v:12:y:2019:i:1:p:27-:d:204010
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    References listed on IDEAS

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