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Advanced Finance (Subject) / Arbitrage Pricing Theory (Lesson)
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- Whereas the CAPM formula requires the market's expected return, APT uses the risky asset's expected return and the risk premium of a number of macro-economic factors. True
- Arbitrageurs use the APT model to profit by taking advantage of mispriced securities. A mispriced security will have a price that differs from the theoretical price predicted by the model. True
- Unterschiede APT und CAPM - Die APT lässt im Unterschied zum CAPM grundsätzlich auch mehrere Faktoren zu. Ein Sonderfall ist das Single-Index-Modell - CAPM assumes Normal Distribution, APT does not - APT recognized multiple systematic risk factors - APT does not require the restrictive assumptions concerning the market porftolio - CAPM requires mean-variance efficient portfolio, APT does not - CAPM assumes that one factor explains security returns, the APT does not - Die APT fordert im Gegensatz zum Capital Asset Pricing Model (CAPM) kein Marktgleichgewicht mehr, sondern lediglich einen arbitragefreien Wertpapiermarkt.: - Anleger müssen nicht, wie beim CAPM, nach dem (μ,σ)-Prinzip entscheiden.- Bei der APT ist keine Aussage über die Risikoeinstellung der Anleger nötig.- Die Annahme des Kapitalmarktgleichgewichts beim CAPM wird bei der APT abgeschwächt: auf dem Kapitalmarkt dürfen keine Arbitragemöglichkeiten bestehen. Daher ist die Kenntnis eines Marktportfolios bei der APT nicht mehr notwendig.
- Intuition ß=1 Market Portfolio!
- a zero investment portfolio with positive alpha could exist if arbitrage opportunities exist
- arbitrage opportunitiy means positive alpha
- Coefficients on the macro-factors factor beta factor sensitivity factor loadings
- factor portfolio A factor portfolio is a well-diversified portfolio constructed to have a beta of 1 on one of the factors and a beta of 0 on any other factor.
- In developing the APT, Ross assumed that uncertainty in asset returns was a result of a common macroeconomic factor and firm-specific factors.
- The ____________ provides an unequivocal statement on the expected return-beta relationship for all assets, whereas the _____________ implies that this relationship holds for all but perhaps a small number of securities. The ________CAPM____ provides an unequivocal statement on the expected return-beta relationship for all assets, whereas the _______APT______ implies that this relationship holds for all but perhaps a small number of securities.
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- Corporation has been trading in a narrow range around $40 per share for months, and you believe it is going to stay in that range for the next 6 months. Sell a straddle