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In finance, arbitrage pricing theory (APT) is a general theory of asset pricing that holds that the expected return of a financial asset can be modeled as a linear function of various macro-economic factors or theoretical market indices, where sensitivity to changes in each factor is represented by a factor-specific beta coefficient. The model-derived rate of return will then be used to price the asset correctly - the asset price should equal the expected end of period price discounts and allowances|discounted at the rate implied by the model. If the price diverges, arbitrage should bring it back into line.
The theory was proposed by the economist Stephen Ross (economist)|Stephen Ross in 1976.
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