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Autoregressive multifactor APT model for U.S. Equity Markets

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  • Malhotra, Karan

Abstract

Arbitrage Pricing Theory is a one period asset pricing model used to predict equity returns based on a multivariate linear regression. We choose three sets of factors – Market specific, firm specific, and an autoregressive return term to explain returns on twenty U.S. stocks, using monthly data over the period 2000-2005. Our findings indicate that, apart from the CAPM beta factor, at least five other factors are significant in determining time series and cross sectional variations in returns. The times series regression establishes factor loadings and the cross sectional regression gives the risk premiums associated with these factors.

Suggested Citation

  • Malhotra, Karan, 2010. "Autoregressive multifactor APT model for U.S. Equity Markets," MPRA Paper 23418, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:23418
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    File URL: https://mpra.ub.uni-muenchen.de/23418/1/MPRA_paper_23418.pdf
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    References listed on IDEAS

    as
    1. Jae-Kwang Hwang, 1999. "The relationship between stock prices and exchange rates: Evidence from Canada," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 5(3), pages 397-397, August.
    2. Shanken, Jay, 1987. "Multivariate proxies and asset pricing relations : Living with the Roll critique," Journal of Financial Economics, Elsevier, vol. 18(1), pages 91-110, March.
    3. Gur Huberman & Zhenyu Wang, 2005. "Arbitrage pricing theory," Staff Reports 216, Federal Reserve Bank of New York.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Equity Pricing; APT; Arbitrage pricing theory; Multifactor model; Security; Pricing; CAPM;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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