Disadvantages and limiations of Arbitrage Pricing Theory Firstly, Arbitrage Pricing theory does not rely on measuring the

performance of the market. Instead, it relates the price of the security to the fundamental factors driving the prices. The problem is that the theory itself does not provide indicators of these factors, in the end they need to be empirically determined. Factors they included economic growth and interest rates. For some industries or sectors, factors like consumer spending is also included. Only the potentially large number of factors means betas to be calculated. There is also no guarantee that all factors have been identified. This addded to the limitation of arbitrage pricing theory. Secondly, the Arbitrage Pricing Theory using factors for the portfolio contructed by different aspect to determine the empirical number. As some of it using book-tomarket ratio, whereas some portfolio does not, infact they sort stock further on estimated loading with respect to factors. APT often seems to describe date in a better model. However, the purported empirical success of APT may well be due to the weakness of the test employed. Some questions come to our mind: which factors influence date the most; what is the economic interpretation of the factors; what are their relationsjips among fsctors of different researchers have reported? Any test of APT is a join test that factors are correctly identified and that the linear pricing relations holds, it can be changed time by time. The number of factors, as well as constructons ia exploding. These has indicates ignorsnce of the true factor structure of asset returns.