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With regards to the Arbitrage pricing theory, where does the term ‘arbitrage’ come from?
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The term “arbitrage” comes from the French word “arbitre” which means “adjudicator” or “judge”. The arbitrage pricing theory was developed by William F. Sharpe, who was an economist at the University of Chicago. The theory states that investors should be able to earn a positive return on their investments, even if the market is falling. The idea behind the theory is that there are certain financial instruments that are very difficult to value, such as options and futures. An investor can purchase these instruments at a low price and sell them at a higher price, earning a profit in the process.