An Empirical Investigation of the Arbitrage Pricing Theory

  • Author(s): RICHARD ROLL, STEPHEN A. ROSS
  • Published: Apr 30, 2012
  • Pages: 1073-1103
  • DOI: 10.1111/j.1540-6261.1980.tb02197.x

ABSTRACT

Empirical tests are reported for Ross' [48] arbitrage theory of asset pricing. Using data for individual equities during the 1962–72 period, at least three and probably four “priced” factors are found in the generating process of returns. The theory is supported in that estimated expected returns depend on estimated factor loadings, and variables such as the “own” standard deviation, though highly correlated (simply) with estimated expected returns, do not add any further explanatory power to that of the factor loadings.

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