MEANING EXPECTED RETURN THE MODEL

Originally developed by Stephen A.Ross APT is an equilibrium model of asset pricing but it assumes that the asset prices are influenced by many factors Assumptions: Perfect competition Efficient markets Homogeneous expectations of investors Many factors affect the securitys returns

Investors are rewarded for non-diversifiable risk. There are a number of factors measure the non-diversifiable risk i.e. systematic risk of an asset under APT CONCEPT OF APT Investors always indulge in arbitrage whenever they find differences in the returns of assets with similar risk characteristics

CAPM has a single Beta as a non-company factor CAPM measures the performance of the market Single Beta with ease made CAPM as widely used model

APT separates out non-company factors into beta of each factor APT relates the price of the security to the fundamental factors driving it Selection of relevant factors with Betas made APT as lesser reliable than CAPM

CAPM

APT