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The Current State of the Arbitrage Pricing Theory

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  • Shanken, Jay

Abstract

This paper provides a simple proof of a recent theorem presented by Haim Reisman (1992) concerning the use of proxies for the factors in the return-generating process of the arbitrage pricing theory. In the single-factor case, the theorem asserts that any variable correlated with the factor can serve as the benchmark in an approximate arbitrage pricing theory expected return relation. The significance of this result is considered and a new direction for empirical work on "arbitrage pricing" is outlined. Copyright 1992 by American Finance Association.

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Bibliographic Info

Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 47 (1992)
Issue (Month): 4 (September)
Pages: 1569-74

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Handle: RePEc:bla:jfinan:v:47:y:1992:i:4:p:1569-74

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Cited by:
  1. John Geweke & Guofu Zhou, 1995. "Measuring the pricing error of the arbitrage pricing theory," Staff Report 189, Federal Reserve Bank of Minneapolis.
  2. Lewellen, Jonathan & Nagel, Stefan & Shanken, Jay, 2010. "A skeptical appraisal of asset pricing tests," Journal of Financial Economics, Elsevier, vol. 96(2), pages 175-194, May.
  3. Jeng, Jau-Lian, 2008. "The existence theorem of approximate multibeta representation for multifactor pricing models with unobservable omitted variables: A technical note," Global Finance Journal, Elsevier, vol. 19(1), pages 11-18.
  4. Faruque, Muhammad U, 2011. "An empirical investigation of the arbitrage pricing theory in a frontier stock market: evidence from Bangladesh," MPRA Paper 38675, University Library of Munich, Germany.
  5. Murtazashvili, Irina & Vozlyublennaia, Nadia, 2013. "When do characteristics-sorted factors mechanically explain returns?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 25(C), pages 119-143.
  6. Matthew D. Merritt & Shaun K. Roache, 2006. "Currency Risk Premia in Global Stock Markets," IMF Working Papers 06/194, International Monetary Fund.
  7. Al-Najjar, Nabil I., 1998. "Factor Analysis and Arbitrage Pricing in Large Asset Economies," Journal of Economic Theory, Elsevier, vol. 78(2), pages 231-262, February.
  8. Datar, Vinay T. & Y. Naik, Narayan & Radcliffe, Robert, 1998. "Liquidity and stock returns: An alternative test," Journal of Financial Markets, Elsevier, vol. 1(2), pages 203-219, August.
  9. MacKinlay, A. Craig, 1995. "Multifactor models do not explain deviations from the CAPM," Journal of Financial Economics, Elsevier, vol. 38(1), pages 3-28, May.
  10. To, Minh Chau & Assoé, Kodjovi Gakpo, 1995. "Performance et commission de souscription des fonds mutuels canadiens," L'Actualité Economique, Société Canadienne de Science Economique, vol. 71(1), pages 27-52, mars.
  11. Kumar, V. & Ramaswami, Sridhar N. & Srivastava, Rajendra K., 2000. "A Model to Explain Shareholder Returns: Marketing Implications," Journal of Business Research, Elsevier, vol. 50(2), pages 157-167, November.
  12. Amit Goyal, 2012. "Empirical cross-sectional asset pricing: a survey," Financial Markets and Portfolio Management, Springer, vol. 26(1), pages 3-38, March.
  13. Nawalkha, Sanjay K., 1997. "A multibeta representation theorem for linear asset pricing theories," Journal of Financial Economics, Elsevier, vol. 46(3), pages 357-381, December.
  14. Zhou, Guofu, 1999. "Security factors as linear combinations of economic variables," Journal of Financial Markets, Elsevier, vol. 2(4), pages 403-432, November.
  15. Shanken, Jay & Weinstein, Mark I., 2006. "Economic forces and the stock market revisited," Journal of Empirical Finance, Elsevier, vol. 13(2), pages 129-144, March.
  16. Thiago de Oliveira Souza, 2010. "Strategic Asset Allocation with Heterogeneous Beliefs," Working Papers ECARES ECARES 2010-042, ULB -- Universite Libre de Bruxelles.

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