The Pricing Kernel Puzzle in Forward Looking Data

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CUESDEANU, Horatio, Jens Carsten JACKWERTH, 2018. The Pricing Kernel Puzzle in Forward Looking Data. In: Review of Derivatives Research. 21(3), pp. 253-276. ISSN 1380-6645. eISSN 1573-7144. Available under: doi: 10.1007/s11147-017-9140-8

@article{Cuesdeanu2018-10Prici-41355.2, title={The Pricing Kernel Puzzle in Forward Looking Data}, year={2018}, doi={10.1007/s11147-017-9140-8}, number={3}, volume={21}, issn={1380-6645}, journal={Review of Derivatives Research}, pages={253--276}, author={Cuesdeanu, Horatio and Jackwerth, Jens Carsten} }

The pricing kernel puzzle concerns the locally increasing empirical pricing kernel, which is inconsistent with a risk-averse representative investor in a single period, single state variable setting. Some recent papers worry that the puzzle is caused simply by the mismatch of backward looking subjective and forward looking risk-neutral distributions of index returns. By using a novel test and forward looking information only, we generally con rm the existence of a u-shaped pricing kernel puzzle in the S&P 500 options data. The evidence is weaker for tests against an alternative with a risk-neutral investor and for longer horizons. Jackwerth, Jens Carsten 2018-10-01T15:17:14Z terms-of-use eng The Pricing Kernel Puzzle in Forward Looking Data Cuesdeanu, Horatio Jackwerth, Jens Carsten 2018-10-01T15:17:14Z Cuesdeanu, Horatio 2018-10

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