Factor Asset Pricing Models: CAPM and APT

Abstract

In this chapter, on the basis of the general equilibrium theory developed in Chap. 4, we present some of the most important asset pricing models, including the Consumption Capital Asset Pricing Model (CCAPM), the Capital Asset Pricing Model (CAPM) and the Arbitrage Pricing Theory (APT). The relations of these asset pricing models with the absence of arbitrage opportunities are also discussed. In this chapter, the theoretical presentation of the models and of their implications is accompanied by an overview of the empirical evidence reported in the literature. In particular, several asset pricing anomalies and puzzles are described and discussed.