The APT: History and Development

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The APT (Arbitrage Pricing Theory) is a financial model that describes the relationship between expected returns on a financial asset and its associated risk factors. It was developed in 1976 by Stephen Ross, an American economist and professor of finance at the Massachusetts Institute of Technology (MIT).

Ross proposed the APT as an alternative to the Capital Asset Pricing Model (CAPM), which was developed by William Sharpe in 1964. While the CAPM is based on the idea that an asset's expected return is a function of its beta, a measure of the asset's sensitivity to market risk, the APT takes a broader view and considers multiple factors that could affect an asset's expected return.

The APT assumes that an asset's expected return is influenced by several risk factors, such as inflation, interest rates, and economic growth, among others. These factors are not specific to the asset, but rather are common to a group of assets. The APT uses statistical analysis to identify these factors and estimate their impact on asset returns.

Ross's APT was a significant contribution to financial economics, as it provided a more comprehensive framework for asset pricing than the CAPM. It allowed investors to better understand the risks associated with their investments and make more informed decisions about portfolio construction.

In conclusion, the correct answer to the question is C. Ross, as he was the economist who developed the APT in 1976.