October 1, 2019
We estimate the pricing kernel from options on the S&P 500 index for different horizons and over time. This allows us to compare short- and long-term pricing kernels and analyze their time-series variation. We show that the well documented pricing kernel puzzle — that is, the non-monotonicity of the pricing kernel — only exists for short horizons. For longer horizons the puzzle disappears and the level, shape and time-series variation of the pricing kernel are in line with standard rational expectation asset pricing models.