Does APT Work in India?

Mohanty, Pitabas (1998) Does APT Work in India? TAPMI, Manipal.

TWP12_98_does APT Work.pdf

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Return generating models playa very valuable role in the theory of Finance. They are used in the estimation of the cost of equity, in portfolio management (for example in creating a portfolio with a particular factor load), in portfolio performance measurement, in testing the efficiency of the capital market, etc. The usage of return generating models (among the practitioners) is however, limited to one of estimation of cost of equity. Financial Institutions and consultancy fmns use (mostly) CAPM as the return generatingmodel. In fact, some of the practitioners confided to me that CAPM is used simply because it is very simple to use and not because it is such a great model. Some of them told me that Arbitrage Pricing Theory (APT) is relatively ne~(!) and hence is not used. However, Richard Roll's (1977,1994) criticism of CAPM is well known and hence it is advisable not to use CAPM as the mistakes we make are not systematic and hence we cannot know whether we are over- or under-estimating the expected return of a capital asset.

Item Type: TAPMI Working Papers
Uncontrolled Keywords: APT Work; India APT Work
Subjects: Finance
Divisions: Finance and Strategy
Depositing User: Ms. Vanitha K
Date Deposited: 17 Nov 2018 10:33
Last Modified: 09 Jan 2019 08:58

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