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

Mamadou Cisse, Mamadou Konte, Mohamed Toure and Smael Afolabi Assani
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Mamadou Cisse: National School of Statistics and Economic Analysis of Dakar, CP 45512 Dakar, Senegal
Mamadou Konte: Department of Economics, University Gaston Berger of Saint-Louis, Saint-Louis 00234, Senegal
Mohamed Toure: National School of Statistics and Economic Analysis of Dakar, CP 45512 Dakar, Senegal
Smael Afolabi Assani: Department of Statistics, University of Montreal, Montreal, QC H3T 1J4, Canada

JRFM, 2019, vol. 12, issue 1, 1-15

Abstract: The conditional capital asset pricing model (CAPM) theory postulates that the systematic risk ( ? ) 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 ? follow a random walk) and the other by the Markov switching (MS) model (assuming that ? 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.

Keywords: West African Regional Market (BRVM); conditional capital asset pricing model (CAPM); Kalman filter; Markov switching (MS) model (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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