A Simple Exposition of The Arbitrage Pricing Theory Approximation

This paper presents the Arbitrage Pricing Theory (APT) in a finite economy for the familiar case of quadratic utility functions. The standard APT result of a linear relationship between expected returns and the covariances of returns is shown to be approximately true, and an expression for the error of the approximation is given. Some suggestive calculations indicate that the error in the approximation is likely to be small.

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Year of publication:	1986
Authors:	Beggs, John J.
Published in:	Australian Journal of Management. - Australian School of Business. - Vol. 11.1986, 1, p. 13-22
Publisher:	Australian School of Business
Subject:	PORTFOLIO ANALYSIS \| CAPM \| QUADRATIC PREFERENCES

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Extent:	text/html
Type of publication:	Article
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10010769325