approximate factor structures interpretations and implications for empirical tests this paper provides some new insights about approximate factor structures as defined by chamberlain and rothschild 2 and their implications for empirical tests first we show that any economy that satisfies an approximate factor structure can be transformed in a manner that does not alter the characteristics of investor portfolios into an economy that satisfies an exact factor structure as defined by ross 9 second we show that principal components analysis represents just one of many methods of forming groups of well diversified portfolios with no idiosyncratic risk in large samples correct factor loadings will be obtained by regressing security returns on any group of these portfolios our interpretations of the chamberlain and rothschild results also provide additional insights into the testability of the arbitrage pricing theory we show that securities cannot be repackaged to hide factors in the manner suggested by shanken 10 without the variance of some of the repackaged securities approaching infinity in large economies

exact arbitrage well diversified portfolios and asset pricing in large markets abstract for a market with an atomless continuum of assets we formulate the intuitive idea of a well diversified portfolio and present a notion of exact arbitrage strictly weaker than the more conventional notion of asymptotic arbitrage and necessary and sufficient for the validity of an apt pricing formula our formula involves essential risk one based on a specific index portfolio constructed from factors and factor loadings that are endogenously extracted to satisfy an optimality property involving a finite number of factors we illustrate how our results can be translated to markets with a large but finite number of assets

a fuzzy goal programming approach to portfolio selection abstract portfolio selection is a usual multiobjective problem this paper will try to deal with the optimum portfolio for a private investor taking into account three criteria return risk and liquidity these objectives in general are not crisp from the point of view of the investor so we will deal with them in fuzzy terms the problem formulation is a goal programming g p one where the goals and the constraints are fuzzy we will apply a fuzzy g p approach to the above problem to obtain a solution then we will offer the investor help in handling the results

pension challenges and pension reforms in oecd countries the 30 oecd member countries have very diverse pension systems current old age public pension spending varies between less than 1 and more than 10 per cent of gross domestic product gdp public spending on pensions per person aged 65 or over varies from less than 15 to more than 40 per cent of economy wide gdp per head for workers entering the labour market today the target pension from all mandatory sources for an average earner varies between 30 and 100 per cent of individual earnings recent pension reforms have a number of common themes first pension eligibility conditions have been tightened second the indexation of pensions in payment has become less generous third some pension schemes link benefit levels to changes in life expectancy finally a number of countries have introduced defined contribution pensions privately managed schemes where the pension benefit depends on contributions and investment returns copyright 2006 oxford university press

interpreting the factor risk premia in the arbitrage pricing theory abstract in the arbitrage pricing theory of ross assets expected returns are shown to be approximately linear in the factor loadings of the process generating returns this note provides a very simple and direct proof of the proposition that the coefficients in this approximate pricing relation can be interpreted as the excess returns on portfolios perfectly correlated with the factors whenever a riskless asset and such mimicking portfolios exist

some results in the theory of arbitrage pricing this paper derives a stronger version of huberman s recent preference free pricing theorem this pricing result relates the expected return on an asset to its factor responses and the covariance structure of the residuals from a linear factor model it must characterize any infinite asset economy in which no arbitrage opportunities are present whether or not the factor model has uncorrelated residuals this result provides the intuition for the role of residual risk in the pricing model and eliminates some classes of arbitrage opportunities still present under huberman s bound some applications to empirical tests and performance measurement are also discussed the arbitrage pricing theory is one of several financial pricing models which attempts to explain the cross sectional variation in expected returns on assets in certain respects it is similar to the capital asset pricing model but there are both substantive and subtle differences one of the key advantages of the apt is that it derives a simple linear pricing relation approximating that in the capm without some of the latter s objectionable assumptions perhaps the key disadvantage of the apt is that it provides no clues as to what might be important factors nor as to how to interpret the factor premiums which appear in the pricing equation this paper serves several purposes after reviewing the linear factor model formulation in section i it derives in section ii a stronger version of huberman s 9 recent preference free pricing theorem this pricing result relates the expected return on an asset to its factor responses and the covariance structure of the residuals this relation must characterize any infinite asset economy in which no arbitrage opportunities are present whether or not a linear factor model with uncorrelated residuals is the appropriate returns generating mechanism section iii specializes this result by eliminating the effects of residual covariances and compares the results here to those of previous apt models when applied to the standard linear factor model with uncorrelated residuals this new pricing bound eliminates arbitrage opportunities which remain under huberman s bound this result also provides for the first time the intuition for the role of residual risk in the approximate pricing relation section v provides an interpretation of the factor premiums and gives a valid asset pricing model interpretation to the apt which is consistent with merton s

the economics of pensions this paper sets out the economic analytics of pensions after introductory discussion successive sections consider the effects of different pension arrangements on labour markets on national savings and growth and on the distribution of burdens and benefits these areas are controversial and politically highly salient while open about expressing our own views the main purpose of the paper is to set out the analytical process by which we reach them to enable readers to form their own conclusions 1 the backdrop this paper has a two fold purpose it sets out the economic analytics of pensions without discussion of empirical magnitudes and outside the context of any particular country with the intention of giving readers a systematic way of thinking about the topic the paper is also intended as a contribution to a continuing debate hence part of the discussion rebuts arguments that we regard as false or equivocal or true in some circumstances but not necessarily always specifically we argue that much analysis is incomplete and oversimplified focussing on one objective while ignoring others assuming an idealised economy with well informed agents and no distortions such as taxes and missing markets comparing one steady state with another when the underlying issue is a move from one steady state to a different one or ignoring distributional effects the opening section sets out some background matters the objectives of pension systems types of pension arrangement and the economics of pensions sections 2 3 and 4 discuss in turn pensions and labour markets mainly microeconomic finance and funding mainly macroeconomic and distributional issues

stable factors in security returns identification using cross validation recent papers in financial research focus on identifying a stable factor structure for security returns the likelihood ratio test typically is used to determine the number of factors from exploratory factor analysis models in this article we consider the use of cross validation to identify a stable factor structure in security returns when applied to actual stock return data cross validation identifies a smaller number of stable factors than the likelihood ratio test in groups of 30 60 randomly selected securities cross validation suggests one dominant factor whereas the likelihood ratio test identifies from four to six factors furthermore when groups are designed to highlight industry or size effects the discovery of more than one dominant factor is problematic even if there are multiple economic factors generating stock returns they may be difficult to disentangle if the underlying factors tend to be correlated

estimation of financial agent based models with simulated maximum likelihood abstract this paper proposes a general computational framework for empirical estimation of financial agent based models for which criterion functions have unknown analytical form for this purpose we adapt a recently developed nonparametric simulated maximum likelihood estimation based on kernel methods in combination with the model developed by brock and hommes 1998 which is one of the most widely analysed heterogeneous agent models in the literature we extensively test the properties and behaviour of the estimation framework as well as its ability to recover parameters consistently and efficiently using simulations key empirical findings indicate the statistical insignificance of the switching coefficient but markedly significant belief parameters that define heterogeneous trading regimes with a predominance of trend following over contrarian strategies in addition we document a slight proportional dominance of fundamentalists over trend following chartists in major world markets

retirement in the uk in common with other oecd countries the uk experienced more than two decades of declining labour market activity among older men from the 1970s to the early 1990s a trend that has only recently shown signs of being reversed retirement decisions are heavily shaped by institutional context and in the uk this has led to there being two distinct groups with very different retirement experiences at the top of the wealth distribution early retirement has typically been influenced by private occupational pensions at the bottom of the wealth distribution individuals are even more likely to be not working in their 50s but do not typically define themselves as retired and draw on income support or more usually disability benefits policy makers keen to increase effective retirement ages will need to consider the very different circumstances of these two groups

arbitrage asset pricing under exchange risk this paper extends the arbitrage pricing theory to an international setting specifying a linear factor return generating model in local currency terms the author shows that the usual risk diversification rule in the arbitrage pricing theory does not yield a riskless portfolio unless currency fluctuations obey the same factor model as asset returns the author then considers an arbitrage portfolio whose exchange risk is hedged by foreign riskless bonds under the resulting no arbitrage conditions the expected returns are not on the same hyperplane unlike the closed economy arbitrage pricing theory unless they are adjusted by the cost of exchange risk hedging copyright 1991 by american finance association

on testing the arbitrage pricing theory inter battery factor analysis this paper tests the arbitrage pricing theory apt by estimating the factor loadings that are consistent between two industry groups of securities one of the pitfalls in the study by roll and ross is that the factors estimated in one group may not be the same with the factors estimated in another group this raises some concerns on the acceptability of their conclusions for our study we employ inter battery factor analysis which enables us to estimate factor loadings by constraining the factors to be the same between two different groups our results show that there seem to be five or six inter group common factors that generate daily returns for two industry groups of securities and these inter group common factors do not seem to depend on the size of groups also based on our cross sectional tests on the risk premia we conclude that the apt should not be rejected the arbitrage pricing theory apt introduced by ross 35 36 provides another model for explaining the relationship between return and risk the apt may be conceived as an alternative to the well known capital asset pricing model capm introduced by sharpe 39 lintner 27 and mossin 29 and later modified by black 1 both models assert that every asset must be compensated only according to its systematic risk one of the major differences is that in the capm the systematic risk of an asset is defined to be the covariability of the asset with the market portfolio whereas in the apt the systematic risks are defined to be the covariability with not only one factor but also possibly with several economic factors another difference is that the capm requires the economy to be in equilibrium whereas the apt requires only that the economy has no arbitrage opportunities note that the absence of arbitrage condition is necessary but not sufficient for the economy to be in equilibrium thus the apt is a more fundamental relationship than the capm in the sense that a rejection of the apt implies the rejection of the capm but not vice versa despite numerous attempts the capm has not been satisfactorily tested and furthermore roll s critique 32 33 casts serious doubts on the testability of the capm itself roll argues that the linear relationship between return and risk will hold for any efficient portfolio thus unless the market portfolio is observed a test of the capm using ex post data is ambiguous it results only in testing the

efficient funds for meager asset spaces abstract for finite state space models of securities markets there exists a portfolio of traded securities on which conventional call or put options suffice to complete securities markets 28 moreover these efficient funds are generic 2 18 the objective of this paper is to present a class of larger models of securities markets for which existence and genericity of efficient funds obtains conditions abstracted from the finite state space case serve to define a meager asset space it is shown that for meager asset spaces satisfying a separability condition efficient funds exist and are generic in a category theoretic sense

optimal managerial contracts and equilibrium security prices recent developments in economic theory have focused attention on efficient methods for providing incentives within a corporation especially to top management jensen meckling 12 have examined some implications of incentive or agency problems for corporate finance in this paper we combine a simple model of security market equilibrium with that of an optimal managerial incentive contract using results of harris raviv 8 and holmstrom 9 we provide a rationale for including security prices in the managerial incentive contracts of publicly held firms in this model we also show that non systematic diversifiable risks will be considered in the capital budgeting decisions of a managerial firm operated in the interests of its stockholders this is in contrast to the implication of the arbitrage pricing theory a similar result follows from the capital asset pricing model which abstracts from incentive problems and suggests that only systematic risks ought to be considered the optimal contract model of the corporation takes the following view of the firm since decision makers within a firm are not sole owners of the business but employed agents the decisions which they make depend on the incentives which the organization provides these incentives are embodied explicitly in employment contracts and implicitly through the threat of dismissal or effect on reputation the contract whether explicit or not describes the decision maker s anticipation of the consequences to him conditional on various observable outcomes these outcomes are used to provide information useful in determining whether he did his job properly in the simplest optimal contract scenario there is a single principal and a single agent whose decision concerns the level of effort he expends the level of effort affects the level of output of the firm but not unambiguously because the output is also governed by other stochastic elements as a result some information about the agent s level of effort can be inferred

a critical reexamination of the empirical evidence on the arbitrage pricing theory this paper demonstrates that the roll and ross rr and other previously published tests of the apt are subject to several basic limitations there is a general nonequivalence of factor analyzing small groups of securities and factor analyzing a group of securities sufficiently large for the apt model to hold it is found that as one increases the number of securities the number of factors determined increases this increase in the number of factors with larger groups of securities cannot readily be explained by a distinction between priced and nonpriced risk factors as it is impermissible to carry out tests on whether a given risk factor is priced using factor analytic procedures the apt model as exposited by ross 17 18 and extended by huberman 9 has provided the basis of an extensive literature as for example brown and weinstein 1 chen 3 hughes 10 ingersoll 11 jobson 12 reinganum 15 roll and ross rr 16 and shanken 17 to mention but a few it has also been treated in a more general context by chamberlain and rothschild 2 our purpose here is not to comment on this collection of papers many of which are unpublished but to reexamine the evidence presented by rr and point out major pitfalls involved in the empirical methodology employed by them and others who have followed their lead rr claim that on theoretical and more importantly on empirical grounds arbitrage pricing theory apt is an attractive alternative to the capital asset pricing model capm the apt it is argued requires less stringent and presumably more plausible assumptions is more readily testable since it does not require the measurement of the market portfolio and may be better able to explain the anomalies found in the application of the capm to asset returns the acceptability of the apt like that of the capm or any other theory ultimately depends on its ability to explain the relevant empirical evidence our subsequent discussion will show that many of the prqblems associated with the capm are also present in the apt context and that its ability to explain the relevant empirical evidence is not markedly superior moreover it raises questions not only about the rr and related empirical investigations of the apt but also about the testability of that theory in the present state of the art a major part of the problem results from the necessity to break down the universe being analyzed through the apt model this is forced upon the investigator by the fact

factor pricing in a finite economy abstract prior theoretical derivations of the arbitrage pricing theory apt bound an aggregate measure of the deviation of mean asset returns from that predicted by a linear pricing equation it is conceivable given this bound that some assets might be badly mispriced by the model in this paper a more intuitive derivation of the factor pricing equation is presented which describes the deviation on an asset by asset basis the deviation is shown to be small for assets in a realistic finite economy and is arbitrarily close to zero for those assets with arbitrarily small size relative to aggregate wealth it follows that the linear pricing equation provides a good approximation for the mean returns of all traded assets

pensions overview of the issues many countries face increasing fiscal problems financing pensions in the face of population aging there is controversy about the underlying economic theory about the extent of the problem and about the best mix of policies to protect old age security this paper establishes the areas of debate gives thumbnail descriptions of pension arrangements in different countries discusses the main analytical and empirical issues relevant to thinking about pension design and assesses a range of policy directions the main conclusions are that what matters most is effective government and economic growth that the debate between pay as you go and funding is secondary that good pension schemes can take many forms and that there is a problem in financing pensions but not a crisis copyright 2006 oxford university press

intertemporal arbitrage pricing theory it is shown that the arbitrage pricing theory holds in each infinitesimal period of a continuous trading model under the assumption that dividend payoffs are functionals of factor and idiosyncratic uncertainty this generalizes the one period model s result that the arbitrage pricing theory holds under the assumption that price changes in a given period satisfy a factor structure since instantaneous returns in a multiperiod model are endogenously determined the theory is derived under assumptions that may be viewed as restricting more primitive characteristics of the economy than the assumptions made for the one period model article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

the pricing of interest rate risk evidence from the stock market this paper addresses the issue of whether firms are required to pay an ex ante premium to investors for bearing the risk of interest rate changes a two factor apt model with the market and changes in the yield on long term government bonds as factors is employed the paper shows that empirically most of the interest sensitive stocks are in the utility industries and that there is reasonable evidence that the interest factor is priced in the sense of the apt several sources for the interest sensitivity are considered and regulatory lags are focused on as a likely candidate some firms exhibit ex post sensitivity in their stock returns to unanticipated changes in interest rates are these firms required to pay investors ex ante for bearing this risk of interest rate changes the framework for examining pricing of unanticipated interest rate changes is a two factor apt model with the market and changes in the yield on long term government bonds as factors the issue is whether the interest rate change premium is significant to study this the paper uses full information maximum likelihood fiml estimation on groups of twenty five individual firms with both cross equation constraints and withinequation nonlinear constraints on the parameters as mandated by the apt model whether the risk of unanticipated changes in interest rates is priced in the market is of particular interest with regard to regulated firms regulated firms especially electric utilities turn out to comprise the big majority of firms that are sensitive to unanticipated interest rate changes after some preliminary investigation the analysis focuses on electric utilities much empirical work on the apt relies on factor analysis e g roll and ross 30 bower bower and logue 5 use factor analysis in comparing the apt and the capm to explain utilities returns the present paper however uses observable variables at the macro level chan chen and hsieh cch 7 and chen roll and ross crr 8 also examine apt models with specific macroeconomic factors cch and crr use a traditional fama macbeth type of cross sectional estimation approach in the premia calculations rather than a fiml approach gibbons and stambaugh have applied fiml techniques to models using only the market as an explanatory variable gibbons 20 used a noniterative algorithm on portfolios of firms equivalent to a two step cross sectional approach stam

uncertainties and risks in transitions to sustainable energy and the part trust might play in managing them a comparison with the current pension crisis abstract transition to a sustainable energy future carries uncertainties for all stakeholders including those who research it history does not repeat itself in detail yet comparison with analogous processes already completed or in train could give shape to how we project the future the author focuses not on the technical change required but rather on the institutional and cultural changes that would be necessary to generate the political will and the consumer demand that would drive technical change and its widespread adoption he examines a current crisis for most developed countries that of old age pension provision which though lacking a link with new technology might have similar social dynamics to an impending crisis in energy in the analysis of the pensions crisis the focus is upon both how risk has been encountered and also the part played by trust mistrust in engendering and prospectively resolving crisis between citizens and state between regulator and providers and between consumers and providers analogies are drawn from in a similar way for the impending energy crisis a refrain throughout is the dialectic between market and plan it is concluded that both the actual and the impending crisis have to be reviewed in a context of relations between states as well as relations within them

a simple approach to arbitrage pricing theory the following sections are included introductionarbitrage pricingdiscussionreferencesdiscussion notes on the arbitrage pricing theorypure arbitrage pricing theoryapproximate arbitrage and the aptapproximate factor modelsthe competitive equilibrium version of the aptconclusionnotereferences this abstract was borrowed from another version of this item

reference variables factor structure and the approximate multibeta representation the arbitrage pricing theory apt implies that if asset returns have a factor structure then an approximate multibeta representation holds with respect to the factors as reference variables this paper assumes that asset returns satisfy a factor structure and derives a condition under which the approximate multibeta representation holds with respect to a set of reference variables which may not be the factors this condition is that the regression matrix of the reference variables on the factors is nonsingular implications for the testability of the apt are also discussed

posterior predictive and utility based approaches to testing the arbitrage pricing theory abstract to provide a framework for judging the economic significance of departures from the arbitrage pricing theory we adopt a utility based metric based on optimal portfolio choices this measure is examined using both predictive and posterior analysis our predictive analysis shows very large and economically significant departures from the model restrictions however the high level of parameter uncertainty suggests that we cannot conclusively either affirm or reject the apt our conclusions differ markedly from other studies which employ traditional significance testing procedures and in many instances fail to reject the apt restrictions

a new pension settlement for the twenty first century the uk pensions commission s analysis and proposals this article summarizes the analysis and recommendations of the uk pensions commission which reported in november 2005 the uk faces similar demographic challenges to other nations from increasing longevity and past fertility declines however in the face of them both state and private pension provision are in decline for younger cohorts the commission proposes reforms to the state pension system which would make it more generous less means tested and more universal than it would otherwise become this would require both higher public spending on pensions as a share of gdp than now and a gradual increase in state pension age after 2020 it also proposes establishment of a new national pension savings scheme into which workers would be automatically enrolled with the right to opt out if they were outside good employer provision together with measures to facilitate later and more flexible retirement copyright 2006 oxford university press

the current state of the arbitrage pricing theory this paper provides a simple proof of a recent theorem presented by reisman 1992 concerning the use of proxies for the factors in the return generating process of the arbitrage pricing theory apt in the single factor case the theorem asserts that any variable correlated with the factor can serve as the benchmark in an approximate apt expected return relation the significance of this result is considered and a new direction for empirical work on arbitrage pricing is outlined given a factor model for an infinite sequence of asset returns ross 1976 showed that the absence of arbitrage implies an approximate linear relation between expected returns and the factor betas ross assumed that returns conform to a strict factor structure i e a factor model with uncorrelated disturbances but noted that this condition could be weakened in deriving the arbitrage pricing theory apt nonetheless statistical methods based on the strict factor model assumption dominated the early empirical work on the apt at first glance the requirement of a strict factor structure appeared to impose a strong restriction on the sets of factors that could be used as a benchmark for measuring systematic risk shanken 1982 demonstrated though that virtually any variables could serve as the factors in a welldefined strict factor model one need only repackage an initial finite set of assets into an equivalent set of portfolios in order to fundamentally alter the associated factor space 2 thus the statistical assumptions underlying the apt cannot by themselves characterize the economically relevant components of returns chamberlain and rothschild 1983 shifted attention away from strict factor structures by proving that the apt holds more generally if returns conform to an approximate factor model 3 in this case the disturbances need

arbitrage pricing theory as a restricted nonlinear multivariate regression model iterated nonlinear seemingly unrelated regression estimates by replacing the unknown random factors of factor analysis with observed macroeconomic variables the arbitrage pricing theory apt is recast as a multivariate nonlinear regression model with across equation restrictions an explicit theoretical justification for the inclusion of an arbitrary well diversified market index is given using monthly returns on 70 stocks iterated nonlinear seemingly unrelated regression techniques are employed to obtain joint estimates of asset sensitivities and their associated apt risk prices without the assumption of normally distributed errors these estimators are strongly consistent and asymptotically normal with the additional assumption of normal errors they are also full information maximum likelihood estimators classical asymptotic nonlinear nested hypothesis tests are supportive of the apt with measured macroeconomic factors

an explicit bound on individual assets deviations from apt pricing in a finite economy abstract ross s arbitrage pricing theory apt is a tractible and reasonable alternative to the mean variance model nonetheless understanding of the theory has been obscured by the complexity of the sequence economy models used for motivation by contrast we give a simple and direct derivation of the apt in a finite economy using an explicit bound on the deviations from apt prices across assets a coarse calculation shows that theoretical deviations from apt pricing are negligible in our economy

general factor models and the structure of security returns based on markowitz s pioneering study 40 sharpe 56 and lintner 38 advanced the first positivist formulations of the capital asset pricing model capm their models were subsequently refined by mossin 45 fama 15 black 1 and others even though the capm has been studied extensively it has not been empirically validated according to roll 48 the capm cannot be tested in an unambiguous fashion because of a number of intractable measurement and computational difficulties and the joint nature of the hypotheses to be tested

equilibrium factor pricing with heterogeneous beliefs this paper develops an equilibrium factor pricing theory when investors have heterogene ous beliefs about asset payoffs generated by the ross linear factor model investors receive private information about the unknown parameters of the payoff process they use this private information and equilibrium prices to predict asset payoffs the paper de velops a closed form price function for a noisy rational expectations equilibrium and relates it to the general solution even though we allow for a large number of investors diversity of beliefs and parameter uncertainty both persist in equilibrium we show that investors beliefs about expected payoffs are approximately linear in the asset s betas thus establishing the apt as investors prefer to hold high information assets in equilib rium the relative weight of these assets in the apt pricing bound is higher the reverse is true for low information assets

multi beta capm or equilibrium apt a reply in their influential empirical paper roll and ross 11 state we think that in many discussions of the capm scholars were actually thinking of the apt and of process 1 the factor model with just a single factor in light of recent developments in the asset pricing literature i think it can now meaningfully be suggested that in many discussions of the apt scholars may have actually been thinking of a multi beta interpretation of the capm indeed much can be said in support of each of these perspectives for a single paradigm is emerging which integrates fundamental aspects of both the capm and the apt broadly speaking the equilibrium capm paradigm emphasizes the role of covariance between asset returns and an endogenous preference based aggregate while the arbitrage apt paradigm focuses on the covariance between asset returns and factors in the return generating process the emerging equilibrium factor paradigm encompasses each of these relations as well as a third covariance between the factors and the equilibrium aggregate my thesis in shanken 17 was that i the arbitrage paradigm has not produced a refutable hypothesis and that ii recognition of the role of the factor aggregate covariance relation appears to be essential if positive economic significance is to be attributed to asset pricing empirical work dybvig and ross d r attempt to resolve the empirical indeterminacy of the arbitrage paradigm by appealing to the condition that residual variance should not be too large i explain in section ii that this condition is inherently ambiguous from an empirical perspective and does not permit the formulation of a precise testable implication the equilibrium factor models which d r discuss do yield testable restrictions on parameters in the return generating process however consistent with my second point above these restrictions involve joint hypotheses that cannot be verified without observing the entire universe of assets thus contrary to their claim considerations similar to those in roll s 10 critique are indeed relevant to the testing of these models this and other similarities between the equilibrium apt and the capm are discussed in section iii i begin by clarifying some basic terminology

government bond returns measurement of interest rate risk and the arbitrage pricing theory empirical tests are reported for ross arbitrage pricing theory using monthly data for u s treasury securities during the 1960 1979 period we find that mean returns on bond portfolios are linearly related to at least two factor loadings multivariate test results however are not consistent with the apt our sample data in the u s treasury securities market are also not consistent with either version of the capm one monthahead forecasts of excess returns using factor generating models are compared with corresponding naive predictions or predictions using the market model with various