The Rise and Fall of the Arbitrage Pricing Theory

11 Pages Posted: 27 Jun 2014  

Jamal Munshi

Sonoma State University

Date Written: June 25, 2014

Abstract

The Arbitrage Pricing Theory (APT) was proposed as a more complex and therefore more complete alternative to the Capital Asset Pricing Model (CAPM) which was thought to be too simple and limited in scope to be a useful or empirically testable theory. In the end it turned out that what the APT had to offer was nothing more than complexity for the sake of complexity. In this paper we review this eventful chapter in the history of finance to gain the insight that research fads often subvert the orderly accumulation of knowledge.

Keywords: APT, capital markets, stock pricing, beta risk, arbitrage pricing theory, research fads

Suggested Citation

Munshi, Jamal, The Rise and Fall of the Arbitrage Pricing Theory (June 25, 2014). Available at SSRN: https://ssrn.com/abstract=2459086 or http://dx.doi.org/10.2139/ssrn.2459086

Jamal Munshi (Contact Author)

Sonoma State University ( email )

1801 East Cotati Avenue
Rohnert Park, CA 94928
United States

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