This chapter presents an empirical application of Bayesian MCMC estimation to the three main asset pricing models in use in the financial econometrics literature, namely, the Capital Asset Pricing Model (CAPM), the Fama-French (1992) three-factor model, and the Carhart (1997) four-factor model...

This paper uses a multivariate GARCH model to account for time variation in factor loadings and idiosyncratic risk in improving the performance of the CAPM and the three-factor Fama-French model. I show how to incorporate time variation in betas and the second moments of the residuals in a very...