The Role of the APT in the Hunt for Alpha: An Insight from Long Ago

Abstract

In this article, the author, who was a research assistant of Stephen Ross as an undergraduate and later an employee of Roll and Ross Asset Management, shares his insight about the prescriptive content of the arbitrage pricing theory. This insight takes advantage of what others might see as a shortcoming of the theory and gives the practitioner, who might otherwise be overwhelmed by the onslaught of factors of dubious provenance, just one simple question to answer.

TOPICS: Portfolio theory, quantitative methods