Multifactor models & APT

[Baidar]

My understanding is that the multifactor models are applications of the APT.

APT assumes firm-specific exposures are diversified away.

Fundamental multifactor models rely on factors like P/E ratio which is purely firm-specific. Isn’t it supposed to be diversified away?!

[CMLSML]

@Baidar

specific exposures are diversified away.

Fundamental multifactor models rely on factors like P/E ratio which is purely firm-specific. Isn’t it supposed to be diversified away?!

@Baidar

specific

APT is a type of multifactor model, but it would be inaccurate that all multifactor models are APT.

[Baidar]

ohhh got it - thank you