Out of the APT Shadow

Woongki Lee
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Woongki Lee: Yonsei University

No rndwc_v1, SocArXiv from Center for Open Science

Abstract: In empirical asset pricing, researchers often evaluate a pricing theory through its empirical factor model. This practice is widespread, but rests on a strong premise: the factor model must be a valid empirical proxy for the theory it claims to implement. In most applications, this premise is assumed rather than verified. Good performance alone is not decisive, because a factor model may reflect equilibrium pricing, arbitrage pricing, or both. This study addresses this ambiguity by separating risks arising solely from arbitrage considerations from those relevant to equilibrium pricing. It then tests whether a factor model truly represents equilibrium pricing theory.

Date: 2026-08-02
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Persistent link: https://EconPapers.repec.org/RePEc:osf:socarx:rndwc_v1

DOI: 10.31219/osf.io/rndwc_v1

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