ARBITRAGE PRICING THEORY (APT)
\ˈɑːbɪtɹɪd͡ʒ pɹˈa͡ɪsɪŋ θˈi͡əɹi ˈapt], \ˈɑːbɪtɹɪdʒ pɹˈaɪsɪŋ θˈiəɹi ˈapt], \ˈɑː_b_ɪ_t_ɹ_ɪ_dʒ p_ɹ_ˈaɪ_s_ɪ_ŋ θ_ˈiə_ɹ_i__ ˈa_p_t]\
Sort: Oldest first
-
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).
By Henry Campbell Black
Word of the day
Dopamine Acetyltransferase
- An enzyme that catalyzes the of groups from acetyl-CoA to arylamines. They have wide specificity for aromatic amines, particularly serotonin, and can also catalyze acetyl transfer between arylamines without CoA. EC 2.3.1.5.
Nearby Words
- arbiter petronius
- arbitrable
- arbitrage
- arbitrage bond
- arbitrage certificate
- ARBITRAGE PRICING THEORY (APT)
- arbitrager
- arbitrageur
- arbitral
- arbitrament
- arbitrament and award