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An Exact Pricing Error of the APT within the Arbitrage Framework

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Authors
Ahn, ChangMo
Issue Date
1999-04
Publisher
Institute of Economic Research, Seoul National University
Citation
Seoul Journal of Economics, Vol.12 No.2, pp. 157-172
Keywords
efficient portfolioindividual assetAPT
Abstract
We derive an exact deviation for an individual asset from APT Pricing in a finite economy within the arbitrage framework. This deviation is the product of a tradeoff between mean and variance of the efficient arbitrage portfolio, the asset's idiosyncratic variance and the proportion of this arbitrage portfolio represented by the asset. We show that the deviation becomes negligible in an infinite economy if the efficient portfolio is well diversified.
ISSN
1225-0279
Language
English
URI
http://hdl.handle.net/10371/1154
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College of Social Sciences (사회과학대학)Institute of Economics Research (경제연구소)Seoul Journal of EconomicsSeoul Journal of Economics vol.12(2) (Summer 1999)
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