Question: The Multifactor Arbitrage Pricing Theory (APT hereafter) is an elegant theory of how exposure to systematic risk factors should affect expected returns. a). What are

The Multifactor Arbitrage Pricing Theory (APT hereafter) is an elegant theory of how exposure to systematic risk factors should affect expected returns. a). What are the advantages of the APT compared with the Capital Asset Pricing Model? b). What are the main drawbacks of the APT? Discuss the models that have been proposed to overcome these drawbacks, and how they have performed empirically.

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