Theory of finance (LM27008)
The University of Birmingham (UBir)
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Arbitrage Pricing Theory
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The Arbitrage Pricing Theory (APT) was developed to address the shortcomings of the Capital Asset Pricing Model (CAPM). CAPM relies on unrealistic assumptions about investor preferences and requires returns to be normally distributed. Moreover, it assumes a homogeneous belief among investors regarding the market portfolio, which is impractical since people hold different beliefs and portfolios. This variability affects the beta (( beta )) values derived from different market portfolios, le...
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Arbitrage Pricing Theory
Last document update:
ago
The Arbitrage Pricing Theory (APT) was developed to address the shortcomings of the Capital Asset Pricing Model (CAPM). CAPM relies on unrealistic assumptions about investor preferences and requires returns to be normally distributed. Moreover, it assumes a homogeneous belief among investors regarding the market portfolio, which is impractical since people hold different beliefs and portfolios. This variability affects the beta (( beta )) values derived from different market portfolios, le...
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