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Arbitrage pricing theory

Arbitrage Pricing TheoryArbitrage pricing theory was created by the Stephen Ross in the year 1976.This theory is basically based on a asset pricing model.This asset pricing model states that returns on assets can easily be estimated by forming a relationship between the return of assets and many other risk factors.



The Arbitrage pricing theory also predicts the close relationship between the single asset returns and portfolio returns in most effective way.According to the most financial experts it is a very good alternative of the capital asset pricing model.The Arbitrage pricing model uses the risk premium and many other macroeconomic factors in calculating the asset returns.

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