A non-parametric test of the conditional CAPM for the Mexican economy
Keywords:conditional mean-variance efficiency, betas of the assets, market risk premium, non-parametric testing
Many models have been suggested to describe how investors manage risk and value risky cash flows. Among them, the most widely used is the Sharpe-Lintner-Black Capital Asset Pricing Model (CAPM).However, many anomalies and evidence against this version have been presented. To assume that the CAPM holds in a conditional sense is to assume that the betas and the market risk premium vary along time. We present a test of the conditional version of the CAPM for the Mexican economy, that uses a non-parametric methodology suggested by Wang that avoids the problem of functional misspecification of the betas of the assets.