Characteristics-Driven Returns in Equilibrium

We reverse-engineer the equilibrium construction process of asset prices in order to obtain returns which depend on firm characteristics, possibly a linear fashion. One key requirement is that agents must have demands rely separately characteristics and log-price assets. Market clearing via exogenous (non-factor driven) supply, combined with yields sought form. The coefficients resulting expressions are scaled net aggregate for as well their variations, both can be jointly estimated panel regressions. Conditions underpinning pricing anomalies derived underline theoretical importance links between characteristics. Empirically, when number small, value momentum mostly driven by firm-specific fixed-effects, i.e., latent demands, highlights shortcomings low-dimensional models.