The Amendment and Empirical Test of Arbitrage Pricing Models

The classical APT model is of the form j j j j EI I r E r ε β + − = − ) ( ) ( , where ) ( j j r E r − is the earning deviation (called basic variance-profit) of the security I j, is a common factor. This paper considers the impact on the securities return caused by the skewness and kurtosis of the stock returns distributions, and poses a re-modified the arbitrage pricing model as follows j j j j j j j EI I EI I EI I EI I r E r ε δ λ θ β + − + − + − + − + = 4 3 2 ) ( ) ( ) ( ) ( ) ( Based on the regression analysis method, and the fitting degree, one can arrive at this re-modified model has a more reasonable explanation level for securities pricing. JEL classification numbers: D46, E17, G11, G17