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The arbitrage pricing theory (APT) is designed as a replacement for the untestable capital asset pricing model. In essence, the APT says that asset returns are a linear function of various macro-economic factors (e.g., industrial production, the spread between long- and short-term interest rates, expected and unexpected inflation, the spread between high- and low-grade bonds). At the present time the model's empirical validity, testability, and the number and identity of its return-generating factors are controversial issues in financial economics.[1]


  1. ^ American Marketing Association. AMA Dictionary.

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