Investigation equity risk premium puzzle in Iran’s economy usingGMM estimation in the S-CCAPM model

Subject Areas : Financial Knowledge of Securities Analysis

Azam Mohammadzadeh ¹ , Mohammad NabiShahiki Tash ² , Reza Roshan ³

1 - دانشجوی دکتری اقتصاد مالی دانشگاه سیستان وبلوچستان، دانشگا ه سیستان و بلوچستان
2 - دانشیار دانشکده اقتصاد دانشگاه سیستان و بلوچستان، دانشگاه سیستان و بلوچستان
3 - استادیار دانشکده علوم انسانی دانشگاه خلیج فارس بوشهر

Received: 2015-11-18 Accepted : 2016-01-15 Published : 2016-12-21

Keywords: Equity risk premium puzzle, Risk-free return, CCAPM model, S-CCAPM model,

Abstract :

One of the most important branches of finance is modeling and evaluation of assets pricing. For this reason, many models have been proposed to explain the pricing of assets. Studies of last two decades refer to limits on the models. Such issue is equity risk premium puzzle. In this paper was investigated the theoretical equity risk premium puzzle with the experimental study of this phenomenon using data of years 1367 to 1391 seasonally from the Stock Exchange in Tehran .To investigate this puzzle addition to Mehra and Prescott (1985) method is used estimation of S-CCAPM model using GMM method. S-CCAPM model is adjustment of CCAPM model that was created with the import savings to utility function. Models results show that according to Mehra and Prescott method equity risk premium is obtained 5.7. This value shows that there is risk premium puzzle in the economy of Iran because with the use of empirical data equity risk premium is 0.129. But at second method, equity risk premium gained 0.4. This implies that the adjustment in the base CCAPM can be helped to solve the puzzle. This implies that the adjustment in the base CCAPM can be helped to solve the puzzle.

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