Suppose the ICAPM governs asset prices and there is a total of S state
variables that might be of hedging concern to investors. Can we deter
mine which state variables are, in fact, of hedging concern? What does
it mean to say that these state variables are priced, that is, that t
hey give rise to special risk premiums in expected returns? The goal o
f this paper is to formulate this problem clearly and show when it can
and cannot be solved. Ignoring estimation problems, it is possible to
find the set of priced state variables when the state variables are i
dentified (named). When we know the number of state variables, but not
their names, confident conclusions about even the number of them that
produce special risk premiums are probably impossible, unless the num
ber is zero, so the ICAPM collapses to the CAPM.