A Unified Cross-Asset Framework with Value–Price Separation

Abstract

Tze Houng LEE and Han Seng LOW

This paper introduces a unified cross-asset framework that separates intrinsic “value” from market “price” and integrates both asset-specific and common risk factors in a single, coherent structure. By incorporating a state-space representation of key macroeconomic and market variables, the framework models the joint evolution of asset values and states. A unified pricing kernel links these values to observed prices, ensuring internal consistency across equities, bonds, and potentially other asset classes. We strengthen this framework by offering explicit conditions for no-arbitrage between equity and bond value formulations, refining the state-space dynamics to accommodate regime shifts or jumps, proposing a concrete empirical strategy grounded in a twostep Kalman filtering approach, and outlining practical implementation guidelines that bridge theory and practice. Through these enhancements, we provide a more robust theoretical foundation and clearer guidance for real-world application.

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