HIGHER ORDER ADAPTIVE KALMAN FILTER FOR TIME VARYING ALPHA AND CROSS MARKET BETA ESTIMATION IN INDIAN MARKET

Atanu Das ()
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Atanu Das: Department of CSE, Netaji Subhash Engineering College Kolkata, INDIA

ECONOMIC COMPUTATION AND ECONOMIC CYBERNETICS STUDIES AND RESEARCH, 2016, vol. 50, issue 3, 211-228

Abstract: First order Adaptive Kalman Filter (AKF) were successful for market risk beta estimation to accommodate the adaptive parameters better in a time varying CAPM. This paper presents a new formulation of a noise covariance adaptation based second and third order AKF for joint estimation of alpha (risk- free), co-incidental and cross market risks (betas) components of market returns in a “two factor” CAPM. Investigations reveal that the higher order AKFs perform as good as Kalman filter in spite of flexibility in the time varying noise covariance.

Keywords: Adaptive Kalman Filter; Time Varying Alpha; Cross Market Beta Estimation; Higher Order Filtering; Indian Market. (search for similar items in EconPapers)
JEL-codes: C13 C32 C58 G13 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (1)

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