Apt methods for passive and active portfolio management.

Abstract

The purpose of this analysis is not to test the validity of an APT model in the Greek stock market but to construct a multi-index model, under the assumption that only economic variables affect stock returns, for empirical use in the field of portfolio management. In other words, we want to examine whether a multi-index model, based on the principles of Arbitrage Pricing Theory and adjusted for the particular characteristics of the Greek stock market, can effectively explain the behavior of stock returns and be used in portfolio management. Our analysis will focus on the application of APT methods in passive and active portfolio management by constructing portfolios with prespecified characteristics of expected return and risk, and by attempting to track benchmark portfolios such as the main stock indices of the Athens Stock Exchange, or even outperform them. So, the main purpose of this work is to examine the usefulness of the estimated multi-index model in portfolio management for the Greek stock market.