Arbitrage Pricing Theory
Arbitrage Pricing Theory (also known by its acronym, APT) is an approach to measuring the equilibrium risk–return relationship for a given stock as a function of multiple factors, rather than the single factor (the market return) used by the CAPM. The APT is based on complex mathematical and statistical theory, and it can account for several factors (such as GNP and the level of inflation) in determining the required return for a particular stock.
Definitions
According to Financial Management Theory and Practice by Eugene F. Brigham and Michael C. Ehrhardt (13th edition),
- Arbitrage Pricing Theory (APT). An approach to measuring the equilibrium risk–return relationship for a given stock as a function of multiple factors, rather than the single factor (the market return) used by the CAPM. The APT is based on complex mathematical and statistical theory, and it can account for several factors (such as GNP and the level of inflation) in determining the required return for a particular stock.
Related concepts
- Financial management. A combination of enterprise efforts undertaken in order to procure and utilize monetary resources of the enterprise.
