CAPM and APT

[pepp]

book says CAPM is a special case of APT
but but,
APT is derived from multifactor models, and capm is an equilibrium model.
so how can capm be special case of apt?

 

[bannisja]

CAPM only has 1 factor- the market portfolio. so it’s a special case of the APT using only this 1 factor.

 

[jankynoname]

Comon, we’re CFA candidates, not ph.d. students…

 

[Semper Augustus]

bannisja Wrote:
——————————————————-
> CAPM only has 1 factor- the market portfolio. so
> it’s a special case of the APT using only this 1
> factor.
Yes.
I wouldn’t give this crap too much thought: the E(Ri) from the macro multifactor model comes from the APT (which itself come from multifactor models) wtf, where does it start…

 

[eltia]

Both CAPM and APT are equilibrium models. CAPM has more restricted assumption than APT. They are both multifactor models (with CAPM being the special case). Unlike CAPM, APT doesn’t need to use the market portfolio.
That’s pretty much all you need to know about APT vs CAPM.