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Arbitrage Pricing Theory – Part Two

Arbitrage Pricing Theory – Part Two

Arbitrage Pricing Theory (APT) is a multi-factor model in which a series of input variables, such as macroeconomic indicators and market indices, are each assigned their own betas to determine the expected return of a target asset.

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Copyright 2011 Eric Bank, Freelance Writer
Arbitrage Pricing Theory – Part One

Arbitrage Pricing Theory – Part One

Arbitrage Pricing Theory (APT) is a multi-factor model conceived by Stephen Ross in 1976. It is a linear equation in which a series of input variables, such as economic indicators and market indices, are each assigned their own betas to determine the expected return of a target asset. These factor-specific betas (b) fine-tune the sensitivity of the target asset’s rate of return to the particular factor.

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Copyright 2011 Eric Bank, Freelance Writer