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Arbitrage Pricing Theory

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Arbitrage Pricing Theory (APT)
An alternative model to the capital asset pricing model developed by Stephen Ross and based purely on arbitrage arguments. The APT implies that there are multiple risk factors that need to be taken into account when calculating risk-adjusted performance or alpha.
Arbitrage Pricing Theory
A pricing model that seeks to calculate the appropriate price of an asset while taking into account systemic risks common across a class of assets. The APT describes a relationship between a single asset and a portfolio that considers many different macroeconomic variables. Any security with a price different from the one predicted by the model is considered mispriced and is an arbitrage opportunity. An investor may use the arbitrage pricing theory to find undervalued securities and assets and take advantage of them. The APT is considered an alternative to the capital asset pricing model.
arbitrage pricing theory
A mathematical theory for explaining security values that holds that the return on an investment is a function of the investment's sensitivity to various common risk factors such as inflation and unemployment.
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Similarly, the same arbitrage arguments would apply to the Arbitrage Pricing Theory (APT).
Merton H. Miller: our Socrates by Chichti, Jamel E.; Bellalah, Mondher; Mansour, Walid / International Journal of Business
2 The significance of information risk Known pricing models, such as the capital asset pricing model (CAPM), consumption-based CAPM and arbitrage pricing theory (APT), all build on investors having symmetric information about expected return and risk for all assets in the market.
Is the market microstructure of stock markets important? by Naes, Randi; Skjeltorp, Johannes / Economic Bulletin
This text examines both sets of issues and applications to regression models, including arbitrage pricing theory models, covering the testing process for econometric models, testing for block effects, model selection procedures, information criteria and controlled information criteria for model selection, the arbitrage pricing model and model selection for testing the arbitrage pricing theory, and case studies for modeling the risk premium of listed stocks.
Econometric Analysis of Model Selection and Model Testing by Reference & Research Book News
 
 
 
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