Reference Dependent Preferences and the EPK Puzzle
AbstractSupported by several recent investigations, the empirical pricing kernel (EPK) puzzle might be considered a stylized fact. Based on an economic model with state dependent preferences for the financial investors, we want to emphasize a microeconomic view that succeeds in explaining the puzzle. We retain the expected utility framework in a one period model and illustrate the case when the state is defined with respect to a reference point. We further investigate how the model relates the shape of the EPK to the economic conditions.
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Bibliographic InfoPaper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2013-023.
Length: 37 pages
Date of creation: May 2013
Date of revision:
Pricing kernel; aggregate agent; empirical pricing kernel; EPK puzzle; state dependent;
Find related papers by JEL classification:
- D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
- D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
- C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
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