Arbitrage Pricing Theory of Portfolio Management | Financial Economics

Capital Assets Pricing Model (CAPM), referred to Arbitrage Pricing Theory (APT) is an equilibrium model of asset pricing but assumes that the returns are generated by a factor model. Its assumption vis-a-vis those of CAPM are set out first: APT: i. Investors do not look at expected returns and standard deviations. ii. Risk Return Analysis is not the basis. Investors [...]