A younger investor, less concerned about these issues, may not be sat- isfied with the lower expected return that inflation hedging implies. It follows from a model with additional hedge portfolios that an OE portfolio for performance evaluation should have the same exposures as the managed portfolio to be evaluated, not just with respect to the overall market, but also with respect to the other relevant risk factors. A related asset pricing model is the Arbitrage Pricing model of Ross (APT, 1976), which allows for several risk factors to determine assets’ expected returns. In the case of the APT the number of fac- tors depends on the dimensionality of the.
