Arbitrage pricing theory is based on the premise that more than one factor affects stock returns, and the factors are specified to be (1) market returns, (2) dividend yields, and (3) changes in inflation.

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Arbitrage Pricing Theory (APT) posits that multiple factors affect stock returns, but it does not specify which factors; instead, it allows for various economic, financial, and firm-specific factors beyond just market returns, dividend yields, and changes in inflation.

Arbitrage Pricing Theory Is Based on the Premise That More