Preferences, continuity, and the arbitrage pricing theory |
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| Authors: | Jarrow RA |
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| Institution: | S.C. Johnson Graduate School of Management, Cornell University, Ithaca, NY14853, USA |
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| Abstract: | This article investigates the structure on preferences requiredto derive Ross's arbitrage pricing theory (APT). It is shownthat only ordinal preferences are required. In particular, theAPT does not require that agents possess preferences representableas risk-averse expected utility functions. This characteristicof the APT is not shared by the standard equilibrium-based capitalasset pricing models. |
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