We investigated the arbitrage pricing theory by using factorial analysis technique. Factor loadings were derived from variance-covariance matrix of odd-week returns and used in a regression model with the mean value of odd-week returns as a dependant variable to generate an equilibrium equation (risk premiums, ). The equation was then tested with mean return of even weeks to estimate the forecasting potential of the model. The results showed that there was no significant difference between the mean values of returns from odd and even weeks (p< 0.05). We conclude from these findings that the stock return in Iran is influenced by an at least two- factor model that explains 40 percent of the total fluctuations in a given portfolio. Our data also indicates an availability of the arbitrage opportunities in Iran Capital Market.
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