Description and Understanding of APT (Arbitrage Pricing Theory)
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Arbitrage Pricing Theory (APT)

APT or (Arbitrage Pricing Theory) is a mathematical model used to determine the fair price of financial securities and other assets by considering systematic macroeconomic risk factors.

In contrast to the CAPM model, which only considers market risk, APT looks at more macroeconomic factors such as interest rates, exchange rates, commodity prices, and economic growth. APT assumes that the expected rate of return on an asset is influenced by these factors.

APT is more flexible because it does not require defining a market portfolio and does not make assumptions about investor behavior. APT focuses on the historical relationship between asset prices and macroeconomic risk factors.


Examples of “apt” in use in sentences


“APT is often used by investment firms and portfolio managers for the valuation of bonds and derivatives that are sensitive to changes in macroeconomic factors.”


“An increase in the benchmark interest rate in the US is likely to have an impact on consumer company share prices through the APT mechanism.”


“Financial analysts need to consider several important macroeconomic factors in applying the APT model.”




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