New Tests of the APT and Their Implications
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- Author(s): PHOEBUS J. DHRYMES, IRWIN FRIEND, MUSTAFA N. GULTEKIN, N. BULENT GULTEKIN
- Published: Apr 30, 2012
- Pages: 659-674
- DOI: 10.1111/j.1540-6261.1985.tb04988.x
This paper provides new tests of the arbitrage pricing theory (APT). Test results appear to be extremely sensitive to the number of securities used in the two stages of the tests of the APT model. New tests also indicate that unique risk is fully as important as common risk. While these tests have serious limitations, they are inconsistent with the APT.