PERFORMANCE EVALUATION ARBITRAGE PRICING THEORY: EVIDENCE FROM INDIA

Abstract

This research aims to assess the efficacy of the Arbitrage Pricing Theory in terms of predictability and forecasting for a given time horizon. The CNX Auto index and its constituents were chosen for this purpose using stratified random sampling from various NSE sectoral indices. Returns for the period of 2010-20 are computed from the index and constituents' weekly closing prices for the period under consideration are processed using a two stage multi regression model. The fitted APT model's predicting performance is supported by strong evidence.