Abstract
ABSTRACT Based on an analysis of the China 50 ETF options and their underlying assets, we measure the empirical pricing kernel and implied risk aversion. By employing a Markov-switching GARCH model, the estimated results show a monotonically decreasing pricing kernel under a high-volatility regime and a U-shaped pricing kernel under a low-volatility regime. The implied risk aversion is inversely S-shaped under both high- and low-volatility regimes. However, the implied risk aversion under the low-volatility regime has a wide range. Investors’ risk aversion perspective helps explain patterns of pricing kernels and risk aversion estimates. Finally, we find that implied risk aversion is predictive of short-term (excess) market returns based on in-sample and out-of-sample tests.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
