TEST OF ARBITRAGE PRICING THEORY ON STOCK INDICES: AN EMPIRICAL STUDY ON BIST100

AKEL Veli, Erciyes University

CISSE Boubacar Amadou, University of Management and Social Sciences of Bamako

Abstract:
The Arbitrage Pricing Theory (APT), based on arbitrage theory, emphasizes that a market can rebalance itself After the occurrence of an arbitrage opportunity. This capability of financial markets confirms the Arbitrage Pricing Theory. This study tests the validity of APT on the Istanbul Stock Exchange between the period of January 2009 and March 2020 on BIST100. Purposing to determine the relationship between security returns and other macroeconomic factor, it will serve as a compass for other emerging countries. With stock return factor as independent variable, this study uses a Vector Error Correction Model (from the VAR family model) with five macro-economic factors: GDP, interest rate, inflation rate, exchange rate and the countries’ production indexes. The resulting model depicts a negative Error Correction Term (ECT) which indicates the validity of the model in the Turkish stock exchange.

Keywords: Arbitrage Pricing Theory, Capital Asset Pricing Model, Error Correction Model

JEL Classification: G12

Volume: 75, Issue: 1

Pages: 7 - 18

Publication date: April, 2023

DOI: 10.56043/reveco-2023-0001

Download the article: http://economice.ulbsibiu.ro/revista.economica/archive/75101akel&cisse.pdf

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