The Impact of Ross’s Exploration of APT on Our Research

Abstract

Stephen A. Ross’s research has had a major impact on the theory and practice of financial economics. In this article, the authors concentrate on one of his contributions: arbitrage pricing theory (APT). After reviewing the theory, they discuss Ross’s contribution to their research. In particular, they review research on the number of factors present in the return-generating process and in expected returns, the use of macroeconomic variables in the APT setting, and implications of APT for the performance and performance predictability of mutual funds.

TOPICS: Portfolio theory, quantitative methods, mutual fund performance