Review of Finance Vol. 21 No. 1 2017

Reference-Dependent Preferences and the Empirical Pricing Kernel Puzzle

Maria Grith¹; Wolfgang Karl Härdle¹; Volker Krätschmer²

¹ 1Humboldt-Universität zu Berlin and · ² 2Universität Duisburg-Essen

Abstract

Supported by several recent investigations, the empirical pricing kernel (PK) puzzle might be considered as a stylized fact. Based on an economic model with reference-dependent preferences for the financial investors, we emphasize a microeconomic view that explains the puzzle via state-dependent aggregate preferences. We also investigate how the shape of the PK estimated from option and stock market index returns changes in relation to the volatility risk premium.

DOI

10.1093/rof/rfv062

Volume

21

Issue

1

Pages

269-298

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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