Abstract
Ever since the Arbitrage Pricing Theory (APT) was developed by Ross, it has been empirically tested in many countries in studying the behaviour of Stock Market returns. The statistical technique of factor analysis is used in the testing of the APT. The objective of this paper is to determine how the hypothesis of structural change in Stock Market returns can be investigated within the context of factor analysis. A total of 257 monthly security returns listed on the London Stock Exchange covering the period January 1976 to December 1993 are used. The data period incorporates the Stock Market Crash of October 1987.
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