Satellite (financial) - Comparison With Arbitrage Pricing Theory

Comparison With Arbitrage Pricing Theory

The SML and CAPM are often contrasted with the arbitrage pricing theory (APT), which holds that the expected return of a financial asset can be modeled as a linear function of various macro-economic factors, where sensitivity to changes in each factor is represented by a factor specific beta coefficient.

The APT is less restrictive in its assumptions: it allows for a statistical model of asset returns, and assumes that each investor will hold a unique portfolio with its own particular array of betas, as opposed to the identical "market portfolio". Unlike the CAPM, the APT, however, does not itself reveal the identity of its priced factors - the number and nature of these factors is likely to change over time and between economies.

Read more about this topic:  Satellite (financial)

Famous quotes containing the words comparison with, theory and/or comparison:

    In everyone’s youthful dreams, philosophy is still vaguely but inseparably, and with singular truth, associated with the East, nor do after years discover its local habitation in the Western world. In comparison with the philosophers of the East, we may say that modern Europe has yet given birth to none.
    Henry David Thoreau (1817–1862)

    No theory is good unless it permits, not rest, but the greatest work. No theory is good except on condition that one use it to go on beyond.
    André Gide (1869–1951)

    Envy and jealousy are the private parts of the human soul. Perhaps the comparison can be extended.
    Friedrich Nietzsche (1844–1900)