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.

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JEL Microeconomic Behavior: Underlying Principles (jel D01), Financial Markets (jel D53), Mathematical Methods (jel C02), Contingent Pricing; Futures Pricing (jel G13)
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Series ERIM Top-Core Articles
Journal Review of Finance (Print)
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