A MicroeconomicExplanation of the EPKParadox

Supported by several recent investigations the empirical pricing kernel paradox might beconsidered as a stylized fact. In Chabi-Yo et al. (2008) simulation studies have been presentedwhich suggest that this paradox might be caused by regime switching of stock prices in financialmarkets. Alternatively, we want to emphasize a microeconomic view. Based on an economicmodel with state dependent utilities for the financial investors we succeed in explaining theparadox by changes of the risk attitudes. Theoretically, the change behaviour is compressed bythe pricing kernels. As a starting point for empirical insights we shall develop and investigateinverse problems in terms of data fits for estimated basic values of the pricing kernel.