In developing the APT, Ross assumed that uncertainty in asset returns was a result of
A) a common macroeconomic factor.
B) firm-specific factors.
C) pricing error.
D) a common macroeconomic factor and firm-specific factors.

Question

Quizplus · Accepted Answer

Ross's Arbitrage Pricing Theory (APT) posits that asset returns can be predicted using the relationship between those returns and various macroeconomic factors as well as firm-specific factors. This theory suggests that both types of factors—common macroeconomic and firm-specific—affect the uncertainty in asset returns.

In Developing the APT, Ross Assumed That Uncertainty in Asset