Unlike the capital asset pricing model,the arbitrage pricing theory requires only the following assumption(s):
A) A quadratric utility function.
B) Normally distributed returns.
C) The stochastic process generating asset returns can be represented by a factor model.
D) A mean-variance efficient market portfolio consisting of all risky assets.
E) All of the above

Question

Quizplus · Accepted Answer

The arbitrage pricing theory assumes that the stochastic process generating asset returns can be represented by a factor model, which means that the returns of an asset are determined by a set of underlying factors. Unlike the CAPM, it does not require assumptions about quadratic utility functions or normally distributed returns, nor does it assume a mean-variance efficient market portfolio consisting of all risky assets.

Unlike the Capital Asset Pricing Model,the Arbitrage Pricing Theory Requires