Explore commonly used personal finance terms.
Arbitrage Pricing Theory (APT) is an asset pricing model that explains returns based on several macroeconomic factors, such as inflation, interest rates, and market risk. Unlike the Capital Asset Pricing Model (CAPM), which relies on a single market factor, APT accounts for multiple sources of risk, providing a more comprehensive view of expected returns. APT is used by portfolio managers and analysts to price securities and assess whether assets are over- or under-valued, enabling informed investment strategies.
