The capital market is abound of mergers, spin-offs, sell-offs, and construction of mutual funds. All these activities impose linear or nonlinear transformations on the return generating process. The validity of the APT under linear transformations of asset returns has been discussed but not...

The three basic elements of the arbitrage pricing theory (APT) are the linear factor structure of asset returns, the nonexistence of asymptotic arbitrage opportunities, and the approximate linear pricing relation. This paper explores the necessary and sufficient conditions of the approximate...

In this paper, we show the reason why the absence of asymptotic arbitrage opportunities in the sense of convergence in quadratic mean (ACQM) as defined in Huberman (1982) is only a necessary condition for an asset market equilibrium. For certain classes of risk-averting investors, a portfolio...

In this paper, we generalize the Arbitrage Pricing Theory (APT) to incorporate the cases where the idiosyncratic risks of the factor model are dependent and/or the second central absolute moments (variances) of the assets returns do not exist. A bound on the pricing errors, similar to the one...