On the Long-Term Stability and Cross-Country Similarity of the Factor Patterns in the Arbitrage Pricing Model

Paavo Yli-Olli, Ilkka Virtanen and Teppo Martikainen

Abstract

The purpose of this paper is to test the Arbitrage Pricing Theory (APT) using monthly data for Finnish and Swedish stock returns during the 1977-1986 period. The first stage involves estimating the systematic risk components for each asset using factor analysis. The second stage involves testing by transformation analysis if the number and structure of factors which influence the security returns remain unchanged across various time periods and across different samples in two Scandinavian countries.

(Proceedings of the University of Vaasa, Research Papers No. 142 (1989), 38 p.)