Meaning of Arbitrage Pricing Theory (APT) is one of the tools used by investors and portfolio managers who explain the return of severity on the basis of their respective beta. This theory was developed by Stephen Ross. In finance, the APT is a general theory of property pricing that believes that the expected return of financial assets can be modeled as a linear function of various factors or theoretical market index, wherein each of the factors The sensitivity of change is represented by a factor-specific beta coefficient. So, what is the question; What is Arbitrage Pricing Theory (APT)? Meaning and Definition.
Here are explains What is Arbitrage Pricing Theory (APT)? with Meaning and Definition.
APT is a multi-factor property pricing model based on this idea that calculating asset returns can be done using linear relationships between the expected return of assets and many macroeconomic variables that hold systematic risk. This theory was created in 1976 by economist Stephen Ross. Arbitrage pricing principle provides a multi-factor pricing model for securities based on the relation between the expected return of financial assets and its risk to analysts and investors. This is a useful tool to analyze the portfolio from a price investment perspective, to temporarily identify the securities incorrectly.
APT is a more flexible and complicated option for the Capital Asset Pricing Model (CAPM). The theory provides investors and analysts with the opportunity to customize their research. The model-derived rate of return will be used to correctly assess the property – the asset value should be equal to the expected end of the discount period at the rate mentioned by the model. If the price goes away, then arbitrage will bring it back to the line.