The Arbitrage Pricing Theory (APT) seeks to determine what factors influence security price movements using:

The Arbitrage Pricing Theory (APT) seeks to determine what factors influence security price movements using:
A . Mean variance analysis
B . Beta testing
C . Technical analysis
D . Regression analysis

View Answer

Answer: D

Explanation:

Understanding APT:

The Arbitrage Pricing Theory (APT) uses statistical models to identify the factors influencing security prices.

Regression analysis is the primary tool to determine the relationship between security returns and multiple factors, such as inflation, GDP growth, or interest rates. Elimination of Other Options:

A: Mean variance analysis pertains to portfolio optimization, not factor analysis.

B: Beta testing is related to CAPM, not APT.

C: Technical analysis examines price patterns, not underlying factors.

Reference: ICWIM Module 3: Coverage of APT and the role of regression models in security pricing.