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In finance, arbitrage pricing theory (APT) is a multi-factor model for asset pricing which relates various macro-economic (systematic) risk variables to the pricing of financial assets. Proposed by economist Stephen Ross in 1976, [ 1 ] it is widely believed to be an improved alternative to its predecessor, the capital asset pricing model (CAPM ...
The arbitrage pricing theory (APT), a general theory of asset pricing, has become influential in the pricing of shares. APT holds that the expected return of a financial asset can be modelled as a linear function of various macro-economic factors, where sensitivity to changes in each factor is represented by a factor specific beta coefficient:
Asymmetric price transmission (sometimes abbreviated as APT and informally called "rockets and feathers" , also known as asymmetric cost pass-through) refers to pricing phenomenon occurring when downstream prices react in a different manner to upstream price changes, depending on the characteristics of upstream prices or changes in those prices.
"Arbitrage" is a French word and denotes a decision by an arbitrator or arbitration tribunal (in modern French, "arbitre" usually means referee or umpire).It was first defined as a financial term in 1704 by French mathemetician Mathieu de la Porte in his treatise "La science des négociants et teneurs de livres" as a consideration of different exchange rates to recognise the most profitable ...
In a discrete (i.e. finite state) market, the following hold: [2] The First Fundamental Theorem of Asset Pricing: A discrete market on a discrete probability space (,,) is arbitrage-free if, and only if, there exists at least one risk neutral probability measure that is equivalent to the original probability measure, P.
Limits to arbitrage is a theory in financial economics that, due to restrictions that are placed on funds that would ordinarily be used by rational traders to arbitrage away pricing inefficiencies, prices may remain in a non-equilibrium state for protracted periods of time.
In economics, the law of one price (LOOP) states that in the absence of trade frictions (such as transport costs and tariffs), and under conditions of free competition and price flexibility (where no individual sellers or buyers have power to manipulate prices and prices can freely adjust), identical goods sold at different locations should be sold for the same price when prices are expressed ...
Financial economics studies how rational investors would apply decision theory to investment management.The subject is thus built on the foundations of microeconomics and derives several key results for the application of decision making under uncertainty to the financial markets.