Testability of the arbitrage pricing theory by neural network

Hamid Z. Ahmadi

57 citations0/0 files storedInternational Joint Conference on Neural Networks (IJCNN)

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Financial Markets and Investment Strategies Financial Risk and Volatility Modeling Stock Market Forecasting Methods

Abstract

The arbitrage pricing theory (APT) offers an alternative to the traditional asset pricing model in finance. In almost all of the literature, a statistical methodology called factor analysis is used to test or estimate the APT model. The major shortcoming of this procedure is that it identifies neither the number nor the definition of the factors that influence the assets. A unique solution to this problem is offered. It uses a simple back-propagation neural network with a generalized delta rule to learn the interaction of the market factors and securities return. This technique can be used to investigate the effect of several variables on one another simultaneously without being plagued with uncertainty of probability distributions of each variable

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References

1976The arbitrage theory of capital asset pricing 1980An Empirical Investigation of the Arbitrage Pricing Theory

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