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An Empirical Test of the Arbitrage Pricing Theory on Australian Stock Returns 1974‐85
Author(s) -
Faff Robert W.
Publication year - 1988
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/j.1467-629x.1988.tb00143.x
Subject(s) - arbitrage pricing theory , arbitrage , capital asset pricing model , index arbitrage , economics , econometrics , financial economics , investment theory , test (biology) , stock (firearms) , mathematical economics , risk arbitrage , rothschild , mathematics , engineering , mechanical engineering , paleontology , biology , history , archaeology
This paper examines empirically, issues concerning the Arbitrage Pricing Theory (APT). Firstly, in the spirit of Chamberlain and Rothschild [1983], the existence of an approximate factor structure is explored. Secondly, following Beggs [1986] and employing a principal components approach, a test of arbitrage pricing and the importance of the error of approximation, is conducted. Finally, using a non nested framework, the APT and CAPM are tested against each other. The results show mixed support for the APT having up to 3 priced factors.