Our speaker will be Maria Kosolapova (Free University of Bozen-Bolzano).

She will give a talk on “Estimating Time-Varying Risk Aversion from Option Prices and Realized Returns” (joint with Michael Hanke and Alex Weissensteiner).

Abstract: We combine risk-neutral densities from equity index options with realized index returns to estimate the market's risk aversion. Starting from a power utility framework with constant risk aversion, we extend it by more flexible stochastic discount factors. We allow for time-varying risk aversion of the marginal investor and we base our estimation as much as possible on forward-looking information. While the levels of the resulting estimates for risk aversion and expected returns are in line with the literature, we find the pricing kernel puzzle to be only an intermittent phenomenon, and our results point to pro-cyclical risk aversion.

The talk will take place on May 11, 2022 hybrid in room TC.5.27 at 12.00 p.m. - 1:00 p.m.

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