Arbitrage Pricing Theory


Arbitrage Pricing Theory (APT) is a financial model that helps determine the expected return of an investment based on different factors that affect its risk. It takes into account multiple factors, like interest rates and inflation, instead of just the overall market risk. The theory assumes that investors will adjust prices to ensure fair value. Essentially, APT provides a way to analyze and price investments by considering various factors that can impact their returns.

Further Explanation

Arbitrage Pricing Theory (APT) is a financial model that helps explain the relationship between the expected return of an investment and its associated risk. APT suggests that an investment’s return is influenced by multiple factors or “risk factors” rather than just the overall market risk (as in the Capital Asset Pricing Model). These risk factors can include interest rates, inflation, exchange rates, and other economic variables.

According to APT, the expected return of an investment can be determined by the sensitivity of its returns to these underlying risk factors. The theory assumes that investors will engage in arbitrage, which is the practice of taking advantage of price differences between markets, to ensure that investments are fairly priced.

In simpler terms, APT suggests that the return of an investment is influenced by various factors beyond the overall market risk. By considering these additional risk factors, the theory provides a framework for understanding and pricing investments in a more comprehensive way.

Why Appoint Valtech as Valuation Adviser?

Valtech’s team has provided valuation advice to over 200 listed companies in Hong Kong, China, Singapore, Taiwan, Australia, the United Kingdom, the United States and Germany.

Valtech Valuation is a professional valuation firm accredited with ISO-9001 in valuation advisory services. The financial market and valuation requirements are highly dynamic. We are determined to develop and maintain a quality management system to foster an environment which is sustainable and evolving continuously. Our founders stress on development of a system and an environment that our consultants are provided with necessary support and opportunities to thrive.

We are a team of professionals from multiple disciplines including audit, financial modelling, tax, internal control and surveying. Our management adheres professional excellence. Abundant resources are reserved to develop standardized policies and procedures for quality control. We have solid track record in valuation advisory for listed companies, private equity, fund managers and financial institutions. We work closely with big four and other international accounting firms, corporate financial advisors, fund managers and legal advisors.

Valtech Advantages:

Advanced Valuation Techniques: Valtech Valuation can develop and implement advanced valuation techniques that are specifically tailored to the needs of clients. These techniques can go beyond traditional valuation methods and incorporate factors such as market trends, industry benchmarks, and risk analysis to provide more accurate and insightful valuations.

Customized Valuation Models: Valtech Valuation can create customized valuation models that align with the unique investment strategies and asset classes. By understanding the specific requirements and objectives of these entities, Valtech Valuation can develop models that capture the nuances of their portfolios, resulting in more precise and relevant valuations.

Data-driven Insights: Valtech Valuation can leverage its access to comprehensive data sources and analytics tools to provide data-driven insights. By analyzing market data, economic indicators, and performance metrics, Valtech Valuation can offer valuable insights into the valuation of assets, identify emerging trends, and help inform investment decision-making.

Adherence to Compliance and Reporting Standards: Valtech Valuation can ensure that valuation practices adhere to regulatory compliance and reporting standards. By staying updated on relevant regulations, such as accounting standards and industry guidelines, Valtech Valuation can help clients meet their reporting obligations accurately and in a timely manner.