Arbitrage Pricing Theory (APT) - Can it Enhance Valuation?
Equilest
JANUARY 3, 2023
The theory suggests that the expected return on an asset can be modeled as a linear function of various macroeconomic factors or "factor loadings" that affect the asset's risk, such as market risk, industry risk, and country risk. First, we need to estimate the factor loadings for each risk factor.
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