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Multi-Index Models and Arbitrage Pricing Theory

In: Lecture Notes in Investment Investment Fundamentals

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  • Eliezer Prisman

Abstract

The multi-index model (MIM) is an extension of the single index model (SIM). The relation between the SIM and the MIM is similar to the relation between a single and multi-variable regression. The MIM introduces the thought that there are a few sources of risk, identified by the model, and thus risk is no longer captured only by the variance of a security or the beta of a security. The idea behind the MIM stems from the premise that there are few common factors (indices) that affect the prices of securities in the market…

Suggested Citation

  • Eliezer Prisman, 2020. "Multi-Index Models and Arbitrage Pricing Theory," World Scientific Book Chapters, in: Lecture Notes in Investment Investment Fundamentals, chapter 9, pages 241-261, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789811219566_0009
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    More about this item

    Keywords

    Equality Markets; Bond Markets; Investment Fundamentals;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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