Definition of Arbitrage Pricing Theory

Definition: APT is short for Arbitrage Pricing Theory; from Stephen Ross, 1976-78. Quoting Sargent, "Ross posited a particular statistical process for asset returns, then derived the restrictions on the process that are implied by the hypothesis that there exist no arbitrage possibilities."

APT is short for Arbitrage Pricing Theory; from Stephen Ross, 1976-78. Quoting Sargent, "Ross posited a particular statistical process for asset returns, then derived the restrictions on the process that are implied by the hypothesis that there exist no arbitrage possibilities."

The APT includes multiple risk factors, unlike the CAPM.(Econterms)

Terms related to APT:

• CAPM
• Arbitrage Opportunity

About.Com Resources on APT: Writing a Term Paper? Here are a few starting points for research on APT:

Books on APT:

Sargent, Thomas J.. 1987. Dynamic Macroeconomic Theory. Harvard University Press.

Journal Articles on APT:

• Ross, S.. 1976. "The Arbitrage Theory of Capital Asset Pricing."
  Journal of Economic Theory. 13: 341-360.