The APT is a special case of a multifactor model. Two of the most important distinguishing characteristics are that the coefficients in the APT are not simply regression coefficients from a regression of returns over time on some factors that have been selected ad hoc. In the APT the coefficients are premiums for an asset’s exposure to certain types of risk. Their values represent a no-arbitrage condition, which is an important assumption in the APT that a general multifactor model does not require |
