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Table of Contents

Table of Contents 1

1.0 Multifactor model 2

2.0 Arbitrage pricing theory (APT) 2

3.0 Multifactor Models (APT) and Testing 4

Reference 7

Multifactor model Estimation of returns on security and APT on

International level demonstrating Factors

Those are statistically significant

1.0 Multifactor model

Pardalos (1997) defines multifactor model as a financial model which uses multiple factors during computation to explain a given market phenomena or at a given equilibrium market prices. The model is also useful in explaining both the individual and portfolio market securities. This is capable through comparison of two or more factors which are being analyzed to determine the relationship between the securities performance and the variables. Formula can be used to express the relationship
Return on equity (Ri), Market return (Rm), factor search (F 1, 2…)

2.0 Arbitrage pricing theory (APT)

The relationship between literature theories and the stock market behavior is the Asset Pricing model (Levy and Thierry 2005). Consigli and Wallace (2000) in their study, indicates that both are used in whenever securities are being given price and the individual assets risk are also being priced and can also be used in between portfolio to give a more insights of business activities and behavior hence helps in calculating related discounts security interest rates and also helps investors to take calculated risk before making decisions concerning type of investment they need to take.

Arbitrage pricing Theory and model was initially discussed by Merton but later Ross (1976) offered further verifiable