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Estimating the Arbitrage Pricing Theory Factor Sensitivities Using Quantile Regression

In: Nonlinear Financial Econometrics: Forecasting Models, Computational and Bayesian Models

Author

Listed:
  • Zeno Adams
  • Roland Füss
  • Philipp Grüber
  • Ulrich Hommel
  • Holger Wohlenberg

Abstract

One of the main insights from over 50 years of portfolio theory is the fact that investors should not hold single securities but should invest in large portfolios. The idiosyncratic risks that affect asset returns on an individual level cancel out so that only systematic risks affecting all assets in the economy have to be considered. The capital asset pricing model (CAPM) (Sharpe 1964; Lintner 1965; Black 1972) laid the cornerstone for the theory of asset pricing which has been replaced in the following years by the Fama-French model (Fama and French 1993) and the arbitrage pricing theory (APT) starting with Ross (1976).1

Suggested Citation

  • Zeno Adams & Roland Füss & Philipp Grüber & Ulrich Hommel & Holger Wohlenberg, 2011. "Estimating the Arbitrage Pricing Theory Factor Sensitivities Using Quantile Regression," Palgrave Macmillan Books, in: Greg N. Gregoriou & Razvan Pascalau (ed.), Nonlinear Financial Econometrics: Forecasting Models, Computational and Bayesian Models, chapter 2, pages 18-27, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-29522-3_2
    DOI: 10.1057/9780230295223_2
    as

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