| arbitrage | A zero-risk, zero-net investment strategy that still generates profits.
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| arbitrage pricing theory | An asset pricing theory that is derived from a factor model, using diversification and ar-bitrage arguments. The theory describes the relationshipbetween expected returns on securities, given that there are no opportunities to create wealth through risk-free arbitrageinvestments.
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| factor beta | Sensitivity of security returns to changes in a systematic factor. Alternatively, factor loading; factorsensitivity.
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| factor loading | See factor beta.
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| factor portfolio | A well-diversified portfolio constructed to have a beta of 1.0 on one factor and a beta of zero on any other factor.
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| factor sensitivity | See factor beta.
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| Law of One Price | The rule stipulating that equivalent securities or bundles of securities must sell at equal prices to preclude arbitrage opportunities.
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| multifactor model | Model of security returns positing that returns respond to several systematic factors.
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| risk arbitrage | Speculation on perceived mispriced se-curities, usually in connection with merger and acquisition targets.
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| single-factor model | A model of security returns that acknowledges only one common factor. See factor model.
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| well-diversified portfolio | A portfolio spread out over many securities in such a way that the weight in any security is close to zero.
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