Arbitrage pricing with information

Abstract The Arbitrage Pricing Theory is extended to a setting where investors possess information about future asset returns. A no-arbitrage pricing restriction is obtained with arbitrage conditioned on an investor's information. The pricing restriction contains unconditional factor loadings and either conditional or unconditional expected returns. Thus, tests of the theory can be based solely on time-series estimates of unconditional moments. Additional tests based on conditional expected returns are also appropriate.

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