APT vs. Multifactor models

On page 239 SS 18. Can someone explain to me using an example, how the APT model is a model that explains asset’s return over a single period of time versus the Multi-factor models (ie macro and fundamental models) explains the variation of asset’s returns OVER TIME? Thanks

  • APT’s model is very similar to CAPM but with more factors not just the market portforlio. The x axis is beta, the slope is the risk premium. - Multi factor is similar to Market model. Its a regression analysis, the x-axis is the market return, interest rate etc. The slope is the beta!! N when you do a regression, the x-axis is OVERTIME values, meaning market return over time (market model) then you could regress… So one is single period (APT, CAPM) and the other is overtime (Market model, Multi Factor) Usually for Marcoeconomic MultiFactor model, the expected return (i.e. without surprises) is derived from either APT or CAPM. Hopefully this would help! Cheers