ELW pricing kernel and empirical risk aversion

This study examines the pricing kernel and empirical risk aversion implied by Korea's equity-linked warrants (ELWs). The estimated pricing kernel is clearly time-varying and exhibits a monotonic decrease with the underlying return state, which is consistent with mainstream economic theories on marginal utility. The movement of empirical risk aversion captures the economic conditions reflecting the recent global and liquidity crises. Particularly, empirical risk aversion has a highly significant relationship with the overall stock market return and credit spread change.