Risk preferences heterogeneity: Evidence from asset markets

Doron Kliger, Ori Levy

Research output: Contribution to journalArticlepeer-review


Using asset market data, as well as theoretical relations between investors' preferences, option-implied, risk-neutral, probability distribution functions (PDFs, ) and index-implied, actual, PDFs, this paper extracts a time-series of investors' relative risk aversion (RRA) functions. Based on results recently derived by Benninga and Mayshar (2000), these functions are used to recover the evolution of risk preferences heterogeneity. Applying non-parametric estimation on European call options written on the S&P500 index, we find that: (i) the RRA functions are decreasing; and (ii) the constructed risk preferences heterogeneity series is positively correlated in a static, as well as a dynamic, setup with a prevalent proxy for investors heterogeneity, namely, the spread between auction- and market-yields of Treasury bills.

Original languageEnglish
Pages (from-to)277-290
Number of pages14
JournalReview of Finance
Issue number3
StatePublished - 2002

Bibliographical note

Publisher Copyright:
© 2002 Kluwer Academic Publishers.


  • Preferences heterogeneity
  • Relative risk aversion
  • S&P500 index options

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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