The APT assumes that capital markets are perfectly competitive.

Question

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The APT (Arbitrage Pricing Theory) assumes that capital markets are perfectly competitive. This means that investors have access to all relevant information about securities and that prices reflect this information accurately. In such a market, there are no market imperfections such as transaction costs, taxes, or restrictions on short-selling, and all investors have the same information and the same investment opportunities. The APT uses this assumption to develop a model that explains the relationship between the risk and return of an asset or portfolio.

The APT Assumes That Capital Markets Are Perfectly Competitive