The arbitrage-pricing theory was developed as an alternative to the

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The arbitrage-pricing theory (APT) was developed as an alternative to the capital asset pricing model (CAPM). The APT is also based on the idea that expected returns of an asset are related to its risk, but it allows for multiple factors that can affect returns, instead of just one factor (market risk) as in the CAPM. APT also assumes that investors can engage in arbitrage to eliminate any pricing inefficiencies caused by mispricings in various factors that affect asset returns. APT differs from the efficient market hypothesis, the random walk theory, and rational expectations theory as these are all theories related to market efficiency, price movements, and investor behavior, rather than asset pricing models.

The Arbitrage-Pricing Theory Was Developed as an Alternative to the