Several asset pricing models have been developed in the literature, all of which can be treated as special theoretical cases of the Arbitrage Pricing Theory (APT). This paper examines aspects of the factor structure implicit in securities' monthly return data. Part of the approach is directly analogous to an examination of market model beta stationarity. It is found that a single factor, typically identified as a market factor, is dominant and remains intertemporally stable. Ceteris paribus, the implicit factor structure is consistent with a one factor APT of which the mean-variance CAPM is a special case.
Ball, R., P. Brown and R.R. Officer, 1976, “Asset Pricing in the Australian Industrial Equity Market”, Australian Journal of Management, 1, 1, 1–32.
2.
Bartlett, M. S., 1950, “Test of Significance in Factor Analysis”, British Journal of Psychology: Statistical Section, 3, 77–85.
3.
Beaver, W. H., P. Kettler and M. Scholes, 1970, “The Association Between Market-Determined and Accounting-Determined Risk Measures”, The Accounting Review, 45, 654–682.
4.
Black, F., 1971, “Capital Market Equilibrium with Restricted Borrowing”, Journal of Business, 45, 444–55.
5.
Blume, M. E., 1975, “Betas and their Regression Tendencies”, Journal of Finance, 26, 1–10.
6.
Brennan, M.J., 1970, “Investor Taxes, Market Equilibrium and Corporate Finance”, Unpublished Ph.D. Dissertation, Massachusetts Institute of Technology.
7.
Browne, M. W., 1968, “A Comparison of Factor Analytic Techniques”, Psychometrika, 33, 3, 267–33.
8.
Cattell, R.B. and A.R. Baggaley, 1960, “The Salient Variable Similarity Index for Factor Matching”, British Journal of Statistical Psychology, 13, 1, 33–46.
9.
Cattell, R. B., K.R. Balcar, J.L. Horn and J.R. Nesselroade, 1969, “Factor Matching Procedures: An Improvement of the S Index; with Tables”, Educational and Psychological Measurement, 29, 781–92.
10.
Chen, Nai-Fu, 1980, “The Arbitrage Pricing Theory: Estimation and Applications”, Working Paper, Graduate School of Management, University of California, Los Angeles.
11.
Dimson, E., 1979, “Risk Measurement When Shares are Subject to Infrequent Trading”, Journal of Financial Economics, 7, 197–226.
12.
Fama, E. F., 1970, “Multiperiod Consumption-Investment Decisions”, American Economic Review, 60, 1, 163–73.
13.
Farrar, D. E., 1962, The Investment Decision Under Uncertainty (Englewood Cliffs, N.J., Prentice-Hall, Inc.).
14.
Harman, H. H., 1976, Modern Factor Analysis (Chicago, University of Chicago Press).
15.
Horn, J.L. and R. Engstrom, 1979, “Cattell's Scree Test in Relation to Bartlett's Chi-Square Test and other observations on the number of factors problem”, Multivariate Behavioural Research, 14, 283–300.
16.
Joreskog, K. G., 1969, “A General Approach to Confirmatory Maximum Likelihood Factor Analysis”, Psychometrika, 34, 2, 183–202.
17.
King, B. F., 1966, “Market and Industry Factors in Stock Price Behaviour”, Journal of Business, 39, 139–90.
18.
Knapp, T.R. and V.H. Swoyer, 1967, “Some Empirical Results Concerning the power of Bartlett's Test of the Significance of a Correlation Matrix”, American Education Research Journal, 4, 13–17.
19.
Korth, B., 1978, “A Significance Test for Congruence Coefficients for Cattell's Factors Matched by Scanning”, Multivariate Behavioural Research, 13, 419–430.
20.
Kraus, A. and R. Litzenberger, 1976, “Skewness Preference and the Valuation of Risk Assets”, Journal of Finance, 31, 1085–1100.
21.
Kryzanowski, L. and M.C. To, 1983, “General Factor Models and the Structure of Security Returns”, Journal of Financial and Quantitative Analysis, 18, 1, 31–52.
22.
Lintner, J., 1965, “The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets”, Review of Economics and Statistics, 47, 13–37.
23.
Livingston, M., 1977, “Industry Movements of Common Stocks”, Journal of Finance, 32, 3, 861–74.
24.
Merton, R. C., 1973, “An Intertemporal Capital Asset Pricing Model”, Econometrica, 41, 5, 867–87.
25.
Meyers, S. L., 1973, “A Re-examination of Market and Industry Factors in Stock Price Behaviour”, Journal of Finance, 28, 3, 695–705.
26.
Mulaik, S. A., 1972, The Foundations of Factor Analysis (New York, McGraw-Hill Book Company Inc.).
27.
Reinganum, M.R., 1980, “A Simple Test of the Arbitrage Pricing Theory”, Unpublished Manuscript, University of Southern California, Los Angeles.
28.
Roll, R. and S.A. Ross, 1980, “An Empirical Investigation of the Arbitrage Pricing Theory”, Journal of Finance, 35, 1073–1102.
29.
Ross, S. A., 1976, “The Arbitrage Theory of Capital Asset Pricing”, Journal of Economic Theory, 13, 341–60.
30.
Ross, S. A., 1977, “Return, Risk and Arbitrage”, in I. Friend and J.L. Bicksler (eds.), Risk and Return in Finance, 189–218 (Massachusetts, Ballinger).
31.
Scholes, M. and J. Williams, 1977, “Estimating Betas from Nonsynchronous Data”, Journal of Financial Economics, 5, 309–27.
32.
Sharpe, W.F. and G.M. Cooper, 1972, “Risk-Return Classes of New York Stock Exchange Common Stocks, 1931–67”, Financial Analysts Journal, 46–54.
33.
Sharpe, W. F., 1964, “Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk”, Journal of Finance, 19, 425–42.
34.
Sinclair, N.A., 1982, “Security Return Data and ‘Blind’ Factor Analysis”, Unpublished Manuscript, Monash University, Melbourne.
35.
Tobias, S. and J.E. Carlson, 1969, “Brief Report: Bartlett's Test of Sphericity and Chance Findings in Factor Analysis”, Multivariate Behavioural Research, 4, 375–7.
