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(Almost) Model-Free Recovery

102 Pages Posted: 10 Aug 2015 Last revised: 5 Jan 2018

Paul Schneider

University of Lugano - Institute of Finance; Swiss Finance Institute

Fabio Trojani

University of Geneva; Swiss Finance Institute

Date Written: January 5, 2018


Under mild assumptions, we recover the model-free conditional minimum variance projection of the pricing kernel on various tradeable realized moments of market returns. Recovered conditional moments predict future realizations and give insight into the cyclicality of equity premia, variance risk premia and highest attainable Sharpe ratios under the minimum variance probability. The pricing kernel projections are often U-shaped and give rise to optimal conditional portfolio strategies with plausible market timing properties, moderate counter-cyclical exposures to higher realized moments, and favorable out-of-sample Sharpe ratios.

Keywords: Pricing Kernel, Model-Free, Projection, Risk Premia, Moments, Recovery Theorem, Trading Strategy

JEL Classification: C02, C23, C52, C61, G11, G12

Suggested Citation

Schneider, Paul and Trojani, Fabio, (Almost) Model-Free Recovery (January 5, 2018). Journal of Finance, Forthcoming. Available at SSRN: or

Paul Georg Schneider (Contact Author)

University of Lugano - Institute of Finance ( email )

Via Buffi 13
CH-6900 Lugano

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4

Fabio Trojani

University of Geneva ( email )


Swiss Finance Institute ( email )

c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900

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