An Empirical Test of the Arbitrage Pricing Theory on Australian Stock Returns 1974‐85

Robert W. Faff*

*Corresponding author for this work

Research output: Contribution to journalArticleResearchpeer-review

11 Citations (Scopus)

Abstract

This paper examines empirically, issues concerning the Arbitrage Pricing Theory (APT). Firstly, in the spirit of Chamberlain and Rothschild [1983], the existence of an approximate factor structure is explored. Secondly, following Beggs [1986] and employing a principal components approach, a test of arbitrage pricing and the importance of the error of approximation, is conducted. Finally, using a non nested framework, the APT and CAPM are tested against each other. The results show mixed support for the APT having up to 3 priced factors.

Original languageEnglish
Pages (from-to)23-43
Number of pages21
JournalAccounting & Finance
Volume28
Issue number2
DOIs
Publication statusPublished - Nov 1988
Externally publishedYes

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