Arbitrage Pricing Theory

Knowledge Center

Summary, forum, best practices, expert tips and information sources.

7 items • 25.982 visits


What is Arbitrage Pricing Theory? Meaning.

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.

Special Interest Group (22 members)


New Topic

Forum about Arbitrage Pricing.


Best Practices

The top-rated topics about Arbitrage Pricing. Here you will find the most valuable ideas and practical suggestions.

Expert Tips

Advanced insights about Arbitrage Pricing. Here you will find professional advices by experts.

Information Sources

Various sources of information regarding Arbitrage Pricing. Here you will find powerpoints, videos, news, etc. to use in your own lectures and workshops.

Research Links

Automatically jump to further useful sources regarding Arbitrage Pricing.

News Videos Presentations Books More






Compare with: CAPM

Special Interest Group

Do you have a keen interest in Arbitrage Pricing? Become our SIG Leader


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
2021 12manage - The Executive Fast Track. V15.8 - Last updated: 2-12-2021. All names of their owners.