The Arbitrage Pricing Theory (APT) of Ross (1976, 1977), and extensions of that theory, constitute an important branch of asset pricing theory and one of the primary alternatives to the Capital Asset Pricing Model (CAPM). In this chapter we survey the theoretical underpinnings, econometric...

This paper develops a new estimation procedure for characteristic-based factor models of security returns. We treat the factor model as a weighted additive nonparametric regression model, with the factor returns serving as time-varying weights, and a set of univariate nonparametric functions...