The Arbitrage Pricing theory, or APT, was developed to shore up some of the deficiences of CAPM we discussed in at the end of the last lecture. In particular, CAPM only works when we make assumptions about preferences which don't make much sense: consumers only care about mean and standard deviations in their wealth if their preferences are quadratic, as Markowitz and Sharpe specified them. Returns must also be normally (that is, Gaussian) distributed. Finally and most importantly, people hold different beliefs, and these beliefs lead them to hold different portfolios. It is therefore not quite clear what the market portfolio actually is. In practice we would use a large stock indx like the S&P 500, but this is not ideal. This lecture explains the APT in some detail, goes through a quick numerical example or four, and finishes off by bashing the little model you've just poured your heart into learning. I know, life is hard. Build a bridge, get over it.
Lecture notes are here, slides are here. You'll find loads of APT papers here. Here's the excel sheet I used in class. Finally, here's a handy CAPM calculator. Here's a recording of the lecture.