Arbitrage pricing theory, APT (See Chapter 22 of the Vernimmen) The Arbitrage Pricing Theory model, proposed by Stephen Ross, assumes that the risk premium is a function of several variables, not just one, i.e. macroeconomic variables (V1, V2,..,Vn), as well as a company “noise”. So for security J: rJ = a + b1 * rV1+ b2 * rV2 + ... + bn * rVn + company specific variable. The model does not stipulate which V factors are to be used. They can be the oil price, changes in the yield curve, exchange rates, inflation rate, manufacturing activity indexexes, etc. Arbitrage pricing theory, APT (See Chapter 22 of the Vernimmen) The Arbitrage Pricing Theory model, proposed by Stephen Ross, assumes that the risk premium is a function of several variables, not just one, i.e. macroeconomic variables (V1, V2,..,Vn), as well as a company “noise”. So for security J: rJ = a + b1 * rV1+ b2 * rV2 + ... + bn * rVn + company specific variable. The model does not stipulate which V factors are to be used. They can be the oil price, changes in the yield curve, exchange rates, inflation rate, manufacturing activity indexexes, etc. See all terms in the dictionary of finance To know more about it, look at what we have already written on this subject :

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Definitions of terms begining with the same letter as "Arbitrage pricing theory, APT" :

ABS ADR ANAV APE APT APV Abandonment risk Accelerated book-building Accelerated depreciation Accelerated share repurchase Account balancing Accounting criteria of value creation Accounting currency risk Accounting procedures with an impact on earnings Accounts payable Accounts receivable Accretion Accruals Accrued expense Accrued income Acid test ratio Acquisitions Adjustable rate preference shares Adjustable-rate debt security

Adjusted Net Asset Value Adjusted present value, APV Administrative synergy Advance dividend Affirmative covenant Agency costs Agency theory Agent bank Agent fee Agreement in principle All-in cost All-share transaction Alliance Allocative efficiency Alpha Also called order book. Alternative management American Depositary Receipt American option Amortisation Amortisation of the loan Annual Premium Equivalent Annual effective interest rate Annuity

Annuity factor Apparent dilution Appraisal clause Arbitrage Arbitrage pricing theory, APT Arranger Arranging the deal Asset backed commercial paper Asset backed securities Asset beta Asset contribution Asset coverage Asset turnover Assets Associate Associated undertaking Asymmetry - option Asymmetry - shareholder / creditor Asymmetry – issuer/investor At the money Atypical silent partner Auction Auction clause Average life of a bond