Which of the following statements concerning arbitrage pricing theory (APT) is FALSE? A) APT assumes a linear relation between required return and systematic risk. B) The residual term e_j is a random error or noise term that is specific to asset j C) APT identifies market risk as a factor that is priced by the market. D) The intercept term represents the asset's expected return if all factors are equal to their expectation. E) The systematic risk factor in the one-factor market model is the difference between actual market index returns and the mean market return.

Question

Quizplus · Accepted Answer

APT does not specifically identify market risk as a factor; it allows for multiple factors that could affect asset returns.

Which of the Following Statements Concerning Arbitrage Pricing Theory (APT)