APPLICATION OF ARBITRAGE PRICING THEORY IN DHAKA STOCK EXCHANGE

Abstract

The study aims to measure the applicability of the Arbitrage Pricing Theory (APT)
in predicting the stock returns of different companies across ten industries in
Dhaka Stock Exchange. In this model, three macro-economic factors, namely gross
domestic product, inflation, and interest rate were used as independent variables.
Stock return data were collected for 218 companies across 10 different industries.
According to the study findings, the selected independent variables are not able to
explain the variability in the stock returns of the selected companies. Thus, APT
model is not effective in predicting the stock returns of the companies listed on
DSE. This non-predictability was found in the case of all the selected ten industries.