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Arbitrage Pricing Theory and Utility Stock Returns
Author(s) -
BOWER DOROTHY H.,
BOWER RICHARD S.,
LOGUE DENNIS E.
Publication year - 1984
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.1540-6261.1984.tb03891.x
Subject(s) - capital asset pricing model , arbitrage pricing theory , investment theory , consumption based capital asset pricing model , economics , stock (firearms) , arbitrage , financial economics , expected return , portfolio , econometrics , risk–return spectrum , mechanical engineering , engineering
This paper presents some new evidence that Arbitrage Pricing Theory may lead to different and better estimates of expected return than the Capital Asset Pricing Model, particularly in the case of utility stock returns. Results for monthly portfolio returns for 1971–1979 lead to the conclusion that regulators should not adopt the single‐factor risk approach of the CAPM as the principal measure of risk, but give greater weight to APT, whose multiple factors provide a better indication of asset risk and a better estimate of expected return.