A Hierarchical State-Based Asset Pricing Model
A Hierarchical State-Based Asset Pricing Model
The exponential growth and variety of studies on returns highlights the lack of comprehensive asset pricing theory for explicitly explaining the empirical data. The paper addresses this challenge by proposing a hierarchical state-based asset pricing model based on two interconnected solutions: the state space of assets and explanatory gain decomposition approach. As a result, the states of assets extend the conventional state of nature for bringing fundamental and macroeconomic characteristics into existing asset pricing models. Then, the decomposition approach tackles the complexity and heterogeneity of asset pricing by advancing all-in analyses with hierarchical piecewise finer-grained regressions. The direction is demonstrated with a multi-step analysis subsequently boosting the explanatory power of regressions between price-to-fundamental ratios and asset quality characteristics and resolving the weak correlation between the HML and RMW factors. Furthermore, the proposed model establishes a direct link between theory and empirics encompassing multi-dimensional data and growing stack of data science techniques.
The exponential growth and variety of studies on returns highlights the lack of comprehensive asset pricing theory for explicitly explaining the empirical data. The paper addresses this challenge by proposing a hierarchical state-based asset pricing model based on two interconnected solutions: the state space of assets and explanatory gain decomposition approach. As a result, the states of assets extend the conventional state of nature for bringing fundamental and macroeconomic characteristics into existing asset pricing models. Then, the decomposition approach tackles the complexity and heterogeneity of asset pricing by advancing all-in analyses with hierarchical piecewise finer-grained regressions. The direction is demonstrated with a multi-step analysis subsequently boosting the explanatory power of regressions between price-to-fundamental ratios and asset quality characteristics and resolving the weak correlation between the HML and RMW factors. Furthermore, the proposed model establishes a direct link between theory and empirics encompassing multi-dimensional data and growing stack of data science techniques.

Keynote: "Lessons from fintech-academic collaborations"
25-27 August 2025
25/08/2025
Antonio Gargano
Keynote

Keynote: "Lessons from fintech-academic collaborations"
25-27 August 2025
25/08/2025
Antonio Gargano
Keynote

Keynote: "Leadership for finance professionals: A CEO-turned-leadership-scholar perspective"
25-27 August 2025
25/08/2025
Emilia Bunea
Keynote

Keynote: "Leadership for finance professionals: A CEO-turned-leadership-scholar perspective"
25-27 August 2025
25/08/2025
Emilia Bunea
Keynote

Keynote: "The promise of digital finance: Greater transparency, enhanced efficiency, and more effective and less burdensome regulation"
25-27 August 2025
26/08/2025
Allan Mendelowitz
Keynote

Keynote: "The promise of digital finance: Greater transparency, enhanced efficiency, and more effective and less burdensome regulation"
25-27 August 2025
26/08/2025
Allan Mendelowitz
Keynote

Keynote: "What we can learn today about the markets of tomorrow: Crypto, crashes and credible research"
25-27 August 2025
27/08/2025
Albert Menkveld
Keynote

Keynote: "What we can learn today about the markets of tomorrow: Crypto, crashes and credible research"
25-27 August 2025
27/08/2025