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.

Microeconomic Behavior: Underlying Principles (jel D01), Financial Markets (jel D53), Mathematical Methods (jel C02), Contingent Pricing; Futures Pricing (jel G13)
dx.doi.org/10.1093/rof/rfv062, hdl.handle.net/1765/112196
ERIM Top-Core Articles
Review of Finance (Print)
Department of Econometrics

Grith, M, Härdle, W.K, & Krätschmer, V. (2016). Reference-Dependent Preferences and the Empirical Pricing Kernel Puzzle. Review of Finance (Print), 21(1), 269–298. doi:10.1093/rof/rfv062