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Some Empirical Tests of the Theory of Arbitrage Pricing
Author(s) -
CHEN NAIFU
Publication year - 1983
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1983.tb03831.x
Subject(s) - capital asset pricing model , arbitrage pricing theory , explanatory power , econometrics , economics , arbitrage , financial economics , consumption based capital asset pricing model , variance (accounting) , factor analysis , investment theory , philosophy , accounting , epistemology
We estimate the parameters of Ross's Arbitrage Pricing Theory (APT). Using daily return data during the 1963–78 period, we compare the evidence on the APT and the Capital Asset Pricing Model (CAPM) as implemented by market indices and find that the APT performs well. The theory is further supported in that estimated expected returns depend on estimated factor loadings, and variables such as own variance and firm size do not contribute additional explanatory power to that of the factor loadings.