Modeling Equity Premium Puzzle by Using Fuzzy Logic: A Number of Evidences from Iran

Subject Areas : Labor and Demographic Economics

Alireza Erfani ¹ , Solmaz Safari ²

1 - دانشیار اقتصاد دانشگاه سمنان
2 - دانشجوی دکتری علوم اقتصادی دانشگاه سمنان

Received: 2017-01-08 Accepted : 2017-01-08 Published : 2016-10-22

Keywords: Fuzzy, JEL Classification: C02, C10, G12. Keywords: Bivariate GARCH, Equity Premium, Habits Model,

Abstract :

This paper is intended to study the equity premium puzzle in basis of Consumption Capital Asset Pricing model in the period 1371-1393 in Iran seasonally. The results confirm the puzzle in the period. Consequently the paper introduces and proposes an experimental and theoretical model to explain equity premium through Consumption Capital Asset Pricing model in habits formation model and combination of financial and economy regimes by Fuzzy Logic. Results derived from proposed model showed that equity premium and risk aversion have a counter- cyclical relation with economic regimes; so that in recession regime and reducing market,  consumption news increase relative risk aversion and equity premium. In this regime, the individual prefers to adventure only in lieu of high level of compensation and he or she also intends to allocate the funds into more certain fields such as bank deposits. While consumption news in the period of boom in economy and increasing market, decrease risk aversion and equity premium. 

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