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Arbitrage Pricing Theory (APT)

Definition:

An alternative model to the capital asset pricing model developed by Stephen Ross and based purely on arbitrage arguments. The APT implies that there are multiple risk factors that need to be taken into account when calculating risk-adjusted performance or alpha.

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Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University

Term of the Day

Laffer curve

A curve conjecturing that economic output will increase if marginal tax rates are cut. Named after economist Arthur Laffer.

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