| 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 arbitrage arguments. The theory describes the relationship between expected returns on securities, given that there are no opportunities to create wealth through risk-free arbitrage investments.
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| Factor beta | Sensitivity of security returns to changes in a systematic factor. Alternatively, factor loading; factor sensitivity.
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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 models | Model of security returns positing that returns respond to several systematic factors.
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| Risk arbitrage | Speculation on perceived mispriced securities, 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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