1988/02/01 by Michael Beenstock, Kam‐Fai Chan
Economics, Econometrics and Finance · #Financial Markets and Investment Strategies #Housing Market and Economics #Monetary Policy and Economic Impact
paper · doi:10.1111/j.1468-0084.1988.mp50001002.x
openalex publication_date 1988/02/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/06/11
Empirical tests of APT have relied on factor analysis to estimate the risk factors. Here the authors propose a diff erent two-stage iterative methodology that relates risk factors to ex plicit economic variables. In the first stage, portfolio returns are regressed over time against these variables. In the second stage, a c ross-section regression is run across portfolios obtained in the firs t stage. The method is applied to 76 portfolios constructed from 760 securities traded on the London Stock Exchange between October 1977 a nd December 1983. Although experimental, four risk factors are identi fied: inflation, money supply, raw material prices, and interest rate s. Copyright 1988 by Blackwell Publishing Ltd