A financial theory posited as a testable, and more flexible, alternative to the CAPITAL ASSET PRICING MODEL (CAPM), based on the concept that multiple linear RISK factors influence the return of a security, and the factors can be estimated through principal components/factor analysis. By understanding the risk and return contribution of each factor, an optimal portfolio can be created. APT, like CAPM, makes use of BETA as a measure of risk. The singlefactor APT return is given by: where E(rj) is the expected return of security j, E(rf) is the expected RISKFREE RATE, 1 is the slope of risk factor 1, and 1 is the beta related to risk factor 1 and security j. The equation can be expanded to multifactor form, with z risk factors: Additional references: Roll (1977), Roll and Ross (1980), Ross (1976).
What is ARBITRAGE PRICING THEORY (APT)?
Featuring Black’s Law Dictionary
Nothing implied or stated on this page should be construed to be legal, tax, or professional advice. The Law Dictionary is not a law firm and this page should not be interpreted as creating an attorney-client or legal adviser relationship. For questions regarding your specific situation, please consult a qualified attorney.
- Conservatorship vs Guardianship
- Housing For Felons
- How to Fill Out Form W-9
- Section 42 Housing
- Types of License Classes
- What Can You Do If a Judge is Unfair?
- How to Sue an Apartment Complex
- Is Giuliani Facing Being Disbarred?
- Biden’s Newly-Threatened Impeachment… Wait, What?
- Trump Refusing To Pay Lawyer Rudy Giuliani
- Best Way to Find Someone in Jail for Free
- What Is A Police Welfare Check?
- How Do You Look up License Plate Numbers?
- Best Way To Run A Free Arrest Warrant Check
- Signing a Letter on Someone Else’s Behalf
- Best Way to Write a Professional Letter to a Judge
- How To Find A Name & Address Using A License Plate Number
- How To Find An Inmate’s Release Date
- How to Transfer a Car Title When The Owner Is Deceased
- What Rights Do Convicted Felons Lose?