Examination of Equity Premium Puzzle by Consumption Capital Asset Pricing Model with Fuzzy Nested Regimes: Evidence from Iran

The aim of this study is to examine the equity premium puzzle in Iran for the quarterly period of 1993-2016. In this regard, the hybrid bivariate Garch model and also fuzzy dummy variables with consumption capital asset pricing model (C-CAPM) have been used. The results of study show that using C-CAPM within fuzzy dummy variables (CCAPM-F), the relative risk aversion coefficient of investor is various between nested regimes of financial and macroeconomics, so that its value for nested regimes like C-CAPM is not unconventional. In economic recession regime and bear markets, the value of this coefficient is in maximum amount. It means that the investor is willing to take risk just for high compensation and tends to invest in assured asset like bank deposits. Totally, regardless of market conditions, the recession regimes are related to higher levels of risk aversion.