Arbitrage Pricing Theory

Knowledge Center

   

Description of Arbitrage Pricing Theory. Explanation.

 

Definition Arbitrage Pricing Theory. Description.


Arbitrage Pricing Theory (APT) is an alternative model to the Capital Asset Pricing Model (CAPM). It was developed by economist Stephen Ross in 1976 and is based purely on arbitrage arguments. It is an equilibrium model of stock returns in which returns are specified to be a linear function of possibly many factors, in contrast to the CAPM, in which returns are specified to be a linear function of one factor, the systematic (non-diversifiable) risk.


Arbitrage is the practice of taking advantage of a state of imbalance between two (or possibly more) markets and thereby making a risk free profit.


APT holds that the expected return of a financial asset can be modeled as a linear function of various macro-economic factors, where sensitivity to changes in each factor is represented by a factor specific beta coefficient. The model derived rate of return will then be used to price the asset correctly - the asset price should equal the expected end of period price discounted at the rate implied by model. If the price diverges, arbitrage should bring it back into line.


Special Interest Group - Arbitrage Pricing


Special Interest Group (24 members)


Forum - Arbitrage Pricing  

In the forum section you will find recent discussions within this knowledge area.




Best Practices - Arbitrage Pricing

In the best practices section you will find the best forum discussions within this knowledge area.



Expert Tips - Arbitrage Pricing

In the expert tips section you will find advices from experts within this knowledge area.



Resources - Arbitrage Pricing

In the Resources section you will find powerpoint presentations, micro-learning videos, articles, news items, etc. within this knowledge area.


 

News about Arbitrage Pricing


     
 

Videos about Arbitrage Pricing


     
 

Presentations about Arbitrage Pricing


     
 

Books about Arbitrage Pricing


     
 

More about Arbitrage Pricing


     

Compare with: CAPM

Special Interest Group Leader

You here? Sign up for free


 
 

Return to Management Hub: Finance & Investing


More on Management  |  Return to Management Dictionary  | 

 

This ends our Arbitrage Pricing Theory summary and forum.



About 12manage | Advertising | Link to us / Cite us | Privacy | Suggestions | Terms of Service
2019 12manage - The Executive Fast Track. V15.0 - Last updated: 20-5-2019. All names of their owners.