Arbitrage Pricing Theory and Unanticipated Macroeconomics Components Generating Process

Abstract

Unanticipated components of macroeconomic variables have important role in testing of Arbitrage Pricing Theory, because generating techniques may lead to false interference based on statistical significance. In this paper, to generate unanticipated components of macroeconomic variables, three methods are employed, Wavelet filter, Change of Rate, and Autoregressive methods. In order to test the APT in Iran, unanticipated components of nonofficial exchange rate, inflation, oil price, and added value of industry are employed, using the actual return of 30 selected firms over the period of March, 2007 - August, 2010. The results revealed that the autoregressive methods and wavelet filter can produce unanticipated components properly. Also, according to the results, the APT is rejected in Tehran Stock Exchange, which indicates there are arbitrage opportunities in Tehran Stock Exchange.

Keywords

• : arbitrage pricing theory
• macroeconomic variables
• wavelet filter