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- Topic: i dont understand this LOS
| Author | Topic: i dont understand this LOS |
|---|---|
| Lonelywolf @2005-01-20 21:20:05 |
does anybody know the answer to this LOS (level 2, quantitative methods)? discuss the relationship between the CAPM and APT that is specified with fundamental factor models. |
| cfaman @2005-01-21 22:42:25 |
Just off the top of my head, but I reckon the LOS is about describing how:a) CAPM is a 1-factor model that explains stock returns solely on the basis of market returnsb) APM is a multi-factor model that expands CAPM to a range of possible explanatory (independent) variables but without specifying which particular factors are valid independent variablesc) FF Models attempt to fill this gap by assuming that a set of company and industry ratios can be valid explanatory variables for stock returnsHope it helps, I have to admit that after the exam I formatted the part of my brain that held the L2 Body of Knowledge. |
| szkiss @2005-01-25 11:44:11 |
I think you are right. CAPM is just a specific form of APM, which only accounts for market return (sigle factor). The drawback for APM is just more complex to apply. CAPM is more accepted only because it's easy to use. |
