I'm reading through Active Portfolio Management, and I can't get my head around the APT.
As far as I can tell, the statement in equation 7.2 translates into:
"If you can get better than consensus estimates on what qualities will outperform, and if you can get an intentional excess exposure to these qualities, and you turn out to be right - you will achieve some outperformance"
For example, if I have insight that "manufacturing industry" will outperform, and I have some basket of assets that will give me above-market exposure to "manufacturing", and both my insight and my portfolio are correct (in its outperformance and exposure respectively) then I'll outperform.
My questions is... isn't that rather, trivial?
There is a fair amount of mathematics that expresses the above as a linear equation, but it doesn't seem to "add" anything. Maybe it's all a procedure to construct a portfolio given assumed perfectly estimated parameters?