Arbitrage Pricing Theory (APT)

[@bestseller24987]

The real challenge is that how we get factors and betas!!!

[@mirakhil]

dang...that was so simple. Saved me a few minutes of readings :) Thank you!

[@bionicturtle]

Jakers2009, thanks for liking...sorry, it's hard to summarize APT in a few minutes...Yes, what you say is exactly true, that's the basic difference: CAPM uses (in a naive way) the total market premium but APT can use many factors including not limited to market factors (e.g., ROE is fundamental) or even "statistical factors" that have no obvious interpretation. Thanks, David

[@bionicturtle]

@Puert4 yes, i understand, but that's theory that to my thinking makes no practical difference at this level (by which i mean, the level of the math model). They are both linear factor models, CAPM and APT. The real "cheat" is so subtle as to hardly matter: the specific case of APT with one factor (ERP or MRP) and one exposure (beta) is technically not the (restricted) theoretical equilibrium CAPM (apparently, inaccessible anyway!). But, really, what is the *meaningful* difference?

[@chrisw8011]

How do you calculate the exposure/beta of the stock to the factor? For the Beta of AT&T to the "growth factor", did you calculate a regression of AT&T to the returns of a large-cap index to find covariance, and use that to calculate a Beta? And for the "factor forecast" that you are multiplying by the Beta, how did you come up with this? Is it the expected return of a representative index minus the risk free rate?

[@devashishmohan]

How do you calculate the sensitivity? Because if we look at the regression formula there is sensitivity I am finding difficulty in understanding the sensitivity and how to implement and calculate it.

[@h0rysheet]

This is very helpful. Thank you!

[@bionicturtle]

@eacans I am glad you did well on the exam, sorry i could not be more help. I will try not to suck so much at videos

[@asiimwe777]

@ a lot simpler than I thought. Thanks for the lesson.

[@ess8594]

How did you work out the partial betas (factor sensitivites) of each stock to the factor? and the factor forecasts?

[@trozosderealidad]

I\'m not sure but ,if anyone else wants to learn about gambling free bets try Grathaw Arbitrage Software Expert ( search on google ) ? Ive heard some super things about it and my colleague got great success with it.

[@arushdom2]

i am so glad i discovered this channel and yes the lecture does sound like seth rogen lol. keep up the good work bionic turtle

[@Jakers2009]

your videos are great- thank you

[@JoeCulv89]

Hello David, I apologize for the informal greeting, This is a great video thank you so much for putting such material into a simplistic explanation. I was wondering if you had a video or could explain to me how you come across the industry forecast, growth, bond, size, and ROE. I would greatly appreciate it

[@joshbatty]

If there is a set of data, is it possible to use this data to derive the exposure to these individual factors, i.e. if we had time series values on market capitalisation for amex, could we use this to work out the 0.17 in cell F17 using excel? thanks

[@bionicturtle]

@eacans they really should give you more advance notice

[@bionicturtle]

@eacans in your case, no.

[@henry954]

Can you show me how to do Triangular arbitrage on excel?

[@Jakers2009]

Your very good but you need a good understanding of the terminology to understand your videos - better than i have at least. so does the CAPM model consider one variable i.e. market risk and the APT model can considers more than one risk eg market risk, other risk etc...?

[@85bezzer]

great! this guy is a natural

[@banihas22]

How does he get 5.33 for APT because if you do (-0.16*2)+(0.74*2.5)+(1.47*(-1.5))+(-0.59*0) = -0.675 instead of 5.33. What am I missing here?

[@banihas22]

I noticed if you add 6% to the -0.675 it would be 5.325 rounded up would be 5.33. I'm thinking 6% (excess return)*1(beta of market) would justify adding 6%, is that correct?

[@halimahmahmud2668]

Ok.😊

[@Beezi.]

wow just when i thought i knew a little about investing and started getting into it i saw this.....still going to go for finance degree...not sure how much this plays into that.

[@bionicturtle]

@eacans lol, okay great, glad we can be friends ... thanks for having a sense of humor! honestly, APT gives me a bit of a headache but i will think about the for dummies version

[@shelouabre6410]

Hays..😢

[@JamalMunshi]

I am not a big fan of the APT and I wrote a paper to explain why. please google "the rise and fall of the arbitrage pricing theory"

[@juanjaramillo3542]

dude, I saw your paper and it has references to articles in wikipedia, so please.....

[@JamalMunshi]

Juan Jaramillo other than that what did you think of the arguments presented in the paper?

[@TheChazbad]

+Jamal Munshi The fact you used wikipedia articles as sources is really really funny. Thank you Jamal

[@JamalMunshi]

+Charles Rees but what about the content of my paper?

[@KRKbert]

I really think lecturers should stop lecturing and play these video`s during periods instead......

[@chfatima688]

Hy

[@lgaica]

this guy sounds like seth rogen LOL