Arbitrage Pricing Theory

A multifactor linear asset‑pricing framework asserting that, under absence of arbitrage and given a set of pervasive systematic factors, the expected excess return of a well‑diversified asset is approximately a linear function of its factor loadings: E[R_i] − R_f ≈ Σ_k β_{ik}·λ_k, where β_{ik} are sensitivities to common factors and λ_k are the associated factor risk premia; the theory specifies t