A0752
Title: Pricey puts and return predictability
Authors: Alex Kontoghiorghes - Bank of England (United Kingdom) [presenting]
Abstract: Significant predictability for the S\&P 500 using information extracted from the monthly empirical pricing kernel across a recent ten year sample is documented. These relations persist after controlling for the variance risk premium, risk neutral skewness and kurtosis and the other common behavioural and accounting measures which are used in the predictability literature. The pricing kernel's slope is seen to be highly correlated to business cycle variables, offering suggestions to where the predictability stems from. Cumulative prospect theory preferences is the advocated driver after time varying risk aversion, sentiment measures and divergences in opinion are ruled out.
