APT and CAPM

The APT is a better approach than the CAPM because even though the factor risk premiums are difficult to estimate, the CAPM is more problematic because it relies on a single market risk premium estimate, which in turn leads to greater input uncertainty.

Incorrect.


From a purely theoretical point of view, one cannot say that the APT is better than the CAPM because the CAPM relies on a single market risk premium. If anything, due to the greater number of inputs required in APT estimation, input uncertainty is probably a more significant problem for the APT than it is for the CAPM.