The Capital Asset Pricing Model (CAPM) widely used for the valuation of financial assets may have periods of low expla- nation (low R-square). For those periods, the factor models have a low confidence. The Kalman filter is able to sort out the noise that often have the data, such as the high volatility of the time series in financial markets. This chapter presents empirical evidence of CAPM model calculation using the Kalman filter from the Mexican financial market data.
