The Current State of the Arbitrage Pricing Theory

  • Author(s): JAY SHANKEN
  • Published: Apr 30, 2012
  • Pages: 1569-1574
  • DOI: 10.1111/j.1540-6261.1992.tb04671.x


This paper provides a simple proof of a recent theorem presented by Reisman (1992), concerning the use of proxies for the factors in the return‐generating process of the arbitrage pricing theory (APT). In the single‐factor case, the theorem asserts that any variable correlated with the factor can serve as the benchmark in an approximate APT expected return relation. The significance of this result is considered and a new direction for empirical work on “arbitrage pricing” is outlined.

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