The Current State of the Arbitrage Pricing Theory.

This paper provides a simple proof of a recent theorem presented by Haim Reisman (1992) concerning the use of proxies for the factors in the return-generating process of the arbitrage pricing theory. In the single-factor case, the theorem asserts that any variable correlated with the factor can serve as the benchmark in an approximate arbitrage pricing theory expected return relation. The significance of this result is considered and a new direction for empirical work on "arbitrage pricing" is outlined. Copyright 1992 by American Finance Association.