Testing portfolio alpha against a linear factor model can be interpreted as a mean-variance efficiency test of the optimal portfolio of factors. For ambiguity neutral investor, adding active portfolio with statistically significant alpha always implies efficiency gain relative to the optimal...

We consider a linear factor APT model and assume that agents are ambiguity averse with respect to payoffs of arbitrage portfolios. In contrast to the standard result, pricing errors need not converge to zero in the limit as the number of assets goes to infinity. Even in the case of exact factor...