What are the deficiencies of the CAPM as an explanation of the relationship between risk and expected asset returns? What is the arbitrage pricing theory (APT) and what are its similarities and differences relative to the CAPM? What are the strengths and weaknesses of the APT as a theory of how risk and expected return are related? How can the APT be used in the security valuation process? How do you test the APT by examining anomalies found with the CAPM? Chapter 9 What are multifactor models and how are they related to the APT? What are the steps necessary in developing a usable multifactor model? What are the two primary approaches employed in defining common risk factors? What are the main macroeconomic variables used in practice as risk factors? What are the main security characteristic-oriented variables used in practice as risk factors? How can multifactor models be used to identify the investment "bets" that an active portfolio manager is make relative to a benchmark