New equilibrium asset pricing model revolutionizes financial market predictions!
The article presents a new way to understand how prices of assets are determined in the financial market. The researchers introduce a concept called factor subspace and create a model that can be used to predict asset prices. They find that there is a smallest factor subspace that is essential for this prediction. This analysis can be used in different economic scenarios, like when there is no overall risk in the economy or when using certain types of distribution models. The research also applies to situations involving call options in the market.