A multifactor asset pricing model that does not depend on the existence of an underlying market portfolio and allows for the possibility that several types of risk may affect asset returns is best described as:
A) Fama-French model.
B) Economic value added.
C) Arbitrage pricing theory.
D) Capital asset pricing model.

Question

Quizplus · Accepted Answer

The Arbitrage Pricing Theory (APT) is a multifactor asset pricing model that does not depend on the existence of an underlying market portfolio, unlike the Capital Asset Pricing Model (CAPM). APT allows for the possibility that several types of risk (factors) may affect asset returns, making it a more flexible approach compared to models that assume a single market factor.

A Multifactor Asset Pricing Model That Does Not Depend on the Existence