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|Title:||Empirical pricing kernels and investor preferences |
Härdle, Wolfgang Karl
Moro, Rouslan A.
|Issue Date:||2007 |
|Series/Report no.:||SFB 649 discussion paper 2007,017|
|Abstract:||This paper analyzes empirical market utility functions and pricing kernels derived from the DAX and DAX option data for three market regimes. A consistent parametric framework of stochastic volatility is used. All empirical market utility functions show a region of risk proclivity that is reproduced by adopting the hypothesis of heterogeneous individual investors whose utility functions have a switching point between bullish and bearish attitudes. The inverse problem of finding the distribution of individual switching points is formulated in the space of stock returns by discretization as a quadratic optimization problem. The resulting distributions vary over time and correspond to different market regimes.|
behvioral finance , risl aversion
|Document Type:||Working Paper|
|Appears in Collections:||SFB 649 Discussion Papers, HU Berlin|
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