Which of the following would not be used as a factor in the APT?
A) The risk-free rate.
B) Unanticipated changes in industrial production.
C) Unanticipated changes in inflation.
D) Unanticipated changes in the default risk premium.

Question

Quizplus · Accepted Answer

The Arbitrage Pricing Theory (APT) is based on the idea that asset returns can be predicted using the relationship between the asset and various macroeconomic, market, or firm-specific factors. The risk-free rate is not considered an unanticipated factor in the APT model; it serves as a baseline for assessing the performance of risky assets. Unanticipated changes in industrial production, inflation, and the default risk premium are examples of factors that could influence asset returns according to APT, as they represent unexpected events that could affect the financial market.

Which of the Following Would Not Be Used as a Factor