The capital asset pricing model (CAPM) is a commonly used regression model in finance to model stock returns. Bayesian methods have been developed for the CAPM to account for market fluctuations within the industry. H...The capital asset pricing model (CAPM) is a commonly used regression model in finance to model stock returns. Bayesian methods have been developed for the CAPM to account for market fluctuations within the industry. However, a Bayesian model checking procedure is needed to assess the CAPM in terms of the usual regression model assumptions of independence, homogeneity of variance, and normality. This paper develops Bayesian residuals and Bayesian p-values to check these model assumptions as well as to suggest model extensions to the CAPM.展开更多
文摘The capital asset pricing model (CAPM) is a commonly used regression model in finance to model stock returns. Bayesian methods have been developed for the CAPM to account for market fluctuations within the industry. However, a Bayesian model checking procedure is needed to assess the CAPM in terms of the usual regression model assumptions of independence, homogeneity of variance, and normality. This paper develops Bayesian residuals and Bayesian p-values to check these model assumptions as well as to suggest model extensions to the CAPM.
