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Title:A microeconomic explanation of the EPK paradox PDF Logo
Authors:Härdle, Wolfgang Karl
Krätschmer, Volker
Moro, Rouslan A.
Issue Date:2009
Series/Report no.:SFB 649 discussion paper 2009,010
Abstract:Supported by several recent investigations the empirical pricing kernel paradox might be considered as a stylized fact. In Chabi-Yo et al. (2008) simulation studies have been presented which suggest that this paradox might be caused by regime switching of stock prices in financial markets. Alternatively, we want to emphasize a microeconomic view. Based on an economic model with state dependent utilities for the financial investors we succeed in explaining the paradox by changes of the risk attitudes. Theoretically, the change behaviour is compressed by the pricing kernels. As a starting point for empirical insights we shall develop and investigate inverse problems in terms of data fits for estimated basic values of the pricing kernel.
Subjects:Pricing kernel
representative agent
empirical pricing kernel
epk paradox
state dependent utilities
switching points
JEL:D01
D58
C02
G13
Document Type:Working Paper
Appears in Collections:SFB 649 Discussion Papers, HU Berlin

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