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(Almost) Model-Free Recovery

68 Pages Posted: 10 Aug 2015 Last revised: 6 Jun 2016

Paul Schneider

University of Lugano - Institute of Finance; Swiss Finance Institute

Fabio Trojani

University of Geneva; Swiss Finance Institute

Date Written: November 16, 2015


Under mild assumptions, we recover the conditional moments of market returns from a model-free pricing kernel projection on tradeable realized moments that minimizes dispersion. Recovered moments predict realized moments and reveal the time-varying properties of horizon-dependent equity premia, variance risk premia and market Sharpe ratios. Projected kernels tend to be monotonic at short horizons and U-shaped at long horizons. They induce optimal trading strategies with counter-cyclical Sharpe ratios and plausible nonlinear market timing properties.

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 (November 16, 2015). 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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