Multifactor models do not explain deviations from the CAPM
Article Abstract:
A study was conducted on the Sharpe-Lintner capital asset pricing model (CAPM). Risk-based and nonrisk-based alternatives were analyzed to explain contradictions observed in CAPM. Results showed that CAPM deviations caused by missing factors are difficult to detect since expected return deviations are followed by increased variance. The importance of economic analysis in differentiating pricing models for risk-return relationships was underscored.
Publication Name: Journal of Financial Economics
Subject: Economics
ISSN: 0304-405X
Year: 1995
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Factor Pricing in a Finite Economy
Article Abstract:
A factor pricing equation is provided to describe price deviation in the Arbitrage Pricing Theory model. Deviation is found to be small in a finite economy. A good approximation for the mean return of all traded assets is achieved.
Publication Name: Journal of Financial Economics
Subject: Economics
ISSN: 0304-405X
Year: 1983
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An Explicit Bound on Individual Assets' Deviations from APT Pricing in a Finite Economy
Article Abstract:
The arbitrage pricing theory (APT) is simplified in a model of a finite economy. An explicit bound on ADP deviations is provided for prices across assets. Theoretical deviations are found to be neglible.
Publication Name: Journal of Financial Economics
Subject: Economics
ISSN: 0304-405X
Year: 1983
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