medium · FRM Part 1 Foundations of Risk Management
Under Arbitrage Pricing Theory (APT), if two well-diversified portfolios have identical factor sensitivities (betas) to all systematic risk factors but different expected returns, which mechanism ensures the restoration of equilibrium?
- Mean-variance optimization by all participants
- Homogeneous expectations across a single horizon
- The existence of a market portfolio
- The law of one price via arbitrage
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