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Issue:

Business

 

Written by:

James O

 

Date added:

August 14, 2015

 

Level:

University

 

Grade:

A

 

No of pages / words:

3 / 633

 

Was viewed:

3562 times

 

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Essay content:

It is interesting to note the fact that APT equation is a generalization of CAPM equation, although the arbitration theory has been created as its alternative. According to this equation, asset value fluctuation is influenced not only by the market factor (market portfolio value), but by other factors as well, including non-market risk factors - national currency exchange rate, energy prices, inflation and unemployment rates, etc...
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If only one factor is considered as risk factor - market portfolio value - the equation will coincide with that of CAPM. What is multi-factor modeling? Taking several factors into account allows creating a stricter model. It results in: More precise asset price change forecasting; Reduction of non-systematic risk, even without portfolio creation...
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