The pricing equation of Ross' (1976) APT model is derived using estimable parameters. Estimation errors are discussed in the framework of elementary perturbation analysis. Theoretically, a simple link is provided among the mean-variance efficient set mathematics, mutual fund separations, discrete and continuous time CAPM, option pricing model, term structure of interest rate, capital budgeting, portfolio ranking, Modigliani Miller theorems with the APT.

A comparison of single and multifactor portfolio performance methodologies using Value Line and size-ranked portfolios indicates that although both methodologies provide unbiased estimates of portfolio performance, there are systematic differences in the power of the two methodologies. The predictive power of the multifactor methodology is superior for well-diversified portfolios but inferior for less diversified portfolios.