# Arbitrage Pricing Theory (APT)

*Risk & Portfolio — Finicade finance glossary*

Arbitrage pricing theory says expected return is driven by several systematic factors, with no-arbitrage forcing the relationship rather than preferences.

Arbitrage pricing theory says an asset's expected return is driven by several systematic factors, with no-arbitrage forcing the relationship rather than an assumption about investor preferences. It's more general than CAPM and considerably less prescriptive: the theory doesn't say which factors matter or how many there are, which is both its flexibility and its emptiness as a testable claim.

**Also known as:** APT, arbitrage pricing theory

**Related terms:** [CAPM (Capital Asset Pricing Model)](https://finicade.com/glossary/capm), [Efficient-Market vs Factors](https://finicade.com/glossary/multi-factor-models), [Fama-French Three-Factor Model](https://finicade.com/glossary/fama-french-three-factor-model), [No-Arbitrage](https://finicade.com/glossary/no-arbitrage), [Systematic Risk](https://finicade.com/glossary/systematic-risk)

**Taught in:** Capital Quarters — Beyond CAPM: Multifactor Models

Source: https://finicade.com/glossary/arbitrage-pricing-theory