One of the main problems with the arbitrage pricing theory is __________.
A) its use of several factors instead of a single market index to explain the risk-return relationship
B) the introduction of non-systematic risk as a key factor in the risk-return relationship
C) that the APT requires an even larger number of unrealistic assumptions than the CAPM
D) the model fails to identify the key macroeconomic variables in the risk-return relationship

Question

Quizplus · Accepted Answer

The arbitrage pricing theory (APT) does not specify which macroeconomic factors should be used, leaving it up to the user to identify relevant factors, which can be a significant challenge.

One of the Main Problems with the Arbitrage Pricing Theory