The arbitrage pricing theory (APT) was developed by Stephen Ross in 1976.
The APT offers an alternative to the modern portfolio theory (MPT).
The more flexible assumptions used by the APT give it an advantage over the popular CAPM model when it comes to actual practical application. The arbitrage pricing theory uses a linear model in which a number of macroeconomic factors are applied to projected capital investments and profits.
But because implementation of the APT model is fairly complex, it is rarely used by private investors.
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Capital Asset Pricing Model (CAPM)
Modern Portfolio Theory (MPT)
Perfect Capital Market
Single Index Model (SIM)
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