Critically compare the APT with the CAPM for use by a fund manager in the UK?

Question

Critically compare the Arbitrage Pricing Theory with the Capital Asset Pricing Model for use by a fund manager in the UK

Answer 1

The "beta" coefficient is central to both of the theories. The fundamental difference between the two theories is that CAPM incorporates a single "beta" to its model, whereas APT a few.

"beta" is a measure of sensitivity for the returns of a portfolio. In CAPM, "beta" measures how sensitive is a portfolio with respect to the returns in the market. For the APT model, however, the "beta"s measure how sensitive is the portfolio with respect to some macroeconomic factors. These factors are determined by the designer of the model, and are subjective.

Answer 2

Search for information on Roll's Critque of CAPM this will provide information on CAPM failings.

Shanken's Challenge of APT will provide you with the problems of APT.

CAPM and APT are standard models and there should be numerous descriptions of these models either on the internet or in a standard investment book.

Answer 3

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Answer 4

If you know all those big words ans your own Question