BAFI Seminar - Tyler Shumway
Pricing Kernel Monotonicity and Conditional Information
Speaker(s): Tyler Shumway, Un. of Michigan
Date & Time: Friday, Nov. 13, 2015 from Noon to 1:30 p.m.
A large literature finds evidence that pricing kernels estimated nonparametrically from option prices and historical returns are not monotonically decreasing in market index returns. We propose a new nonparametric estimator of the pricing kernel that reflects the information available to investors who set option prices. In simulations, the estimator outperforms current techniques. Our empirical estimates using S&P 500 index option data from 1996-2012 and FTSE 100 index option data from 2002-2013 suggest that the "pricing kernel puzzle" is a byproduct of econometric technique rather than a behavioral or economic phenomenon.
Peter B. Lewis Building Room 05
11119 Bellflower Road
Cleveland, OH 44106-7235
Attachment: Shumway paper