

Arbitrage pricing theory (APT) is an asset pricing model based on the idea that an asset's returns can be predicted using the relationship between that same asset and many common risk factors. Created in 1976 by Stephen Ross, this theory predicts a relationship between the returns of a portfolio and the returns of a single asset through a linear combination of many independent macroeconomic variables.
The arbitrage pricing theory describes the price where a mispriced asset is expected to be. APT is often viewed as an alternative to the capital asset pricing model (CAPM), since the APT has more flexible assumption requirements. Whereas the CAPM formula requires the market's expected return, APT uses the risky asset's expected return and the risk premium of a number of macroeconomic factors.
Arbitrageurs use the APT model to profit by taking advantage of mispriced securities. A mispriced security will have a price that differs from the theoretical price predicted by the model. By going short an overpriced security while concurrently going long the portfolio the APT calculations were based on, the arbitrageur is in a position to make a theoretically riskfree profit.
Introduction To Risk Management

Investing
CAPM vs. Arbitrage Pricing Theory: How They Differ
Both project the expected rate of return given the level of risk assumed, but they consider different variables. 
Trading
Understanding Arbitrage Pricing Theory
Investors use the arbitrage pricing theory to identify an asset that’s incorrectly priced. 
Investing
Arbitrage Pricing Theory: It's Not Just Fancy Math
What are the main ideas behind arbitrage pricing theory? We provide a simple explanation of the model and how to use it. 
Investing
Capital Asset Pricing Model  CAPM
CAPM is a model that describes the relationship between risk and expected return. 
Trading
Why Is Arbitrage Trading Legal?
Not only is arbitrage legal in the US and most developed countries, it can be beneficial to the overall health of a market. 
Investing
The Capital Asset Pricing Model: An Overview
CAPM helps you determine what return you deserve for putting your money at risk. 
Investing
The Capital Asset Pricing (CAPM) Model: Pros and Cons
CAPM, while criticized for its unrealistic assumptions, provides a more useful outcome than either the DDM or WACC in many situations. 
Investing
Taking Shots At CAPM
Find out why many investors think the capital asset pricing model is full of holes. 
Investing
Valuation Models: Apple’s Stock Analysis With CAPM
The capital asset pricing model, or the CAPM, estimates the expected return of an asset based on the systematic risk of the asset’s return.