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hi sir
i am having difficulties in understanding the concept of arbitrage pricing theory
is it important to know the arbitrage pricing theory?
i understand what arbitrage is which is the law of one price but when you put it against the CAPM i cannot understand.
can you help me please
thank you
It is the same idea as CAPM.
CAPM has just one beta to measure the systematic risk, but since systematic risk is made up of several factors (e.g. exchange rates; inflation; etc.) arbitrage pricing theory has several betas – each one measuring a different risk factor.
You cannot be asked calculations on it (and it is not clear whether it is actually still in the syllabus).
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