We update the survey of the pricing kernel puzzle of Jackwerth (2004). We document the pricing kernel puzzle in several markets and present the latest evidence concerning its (non-)existence. Econometric studies are detailed which test for the pricing kernel puzzle.Explanations of the pricing kernel puzzle are discussed and we suggest areas where more research is needed.

The pricing kernel puzzle concerns the locally increasing empirical pricing kernel, which is inconsistent with a risk-averse representative investor in a single period, single state variable setting. Some recent papers worry that the puzzle is caused simply by the mismatch of backward looking subjective and forward looking risk-neutral distributions of index returns. By using a novel test and forward looking information only, we generally confirm the existence of a u-shaped pricing kernel puzzle in the S&P 500 options data. The evidence is weaker for tests against an alternative with a risk-neutral investor and for longer horizons.

The pricing kernel puzzle concerns the locally increasing empirical pricing kernel, which is inconsistent with a risk-averse representative investor in a single period, single state variable setting. Some recent papers worry that the puzzle is caused simply by the mismatch of backward looking subjective and forward looking risk-neutral distributions of index returns. By using a novel test and forward looking information only, we generally confirm the existence of a u-shaped pricing kernel puzzle in the S&P 500 options data. The evidence is weaker for tests against an alternative with a risk-neutral investor and for longer horizons.

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We update the survey of the pricing kernel puzzle of Jackwerth (2004). We document the pricing kernel puzzle in several markets and present the latest evidence concerning its (non-)existence. Econometric studies are detailed which test for the pricing kernel puzzle.Explanations of the pricing kernel puzzle are discussed and we suggest areas where more research is needed.