Document Type : Research Paper

Authors

• Reza Taleblou ¹
• mohammad mehdi bagheri todeshki ²

¹ Department of Theoretical Economics,Faculty of Economics , Allameh Tabatabai University

² Ph.D in Financial Economics, Allameh Tabataba'i University, Tehran, Iran.

Abstract

This paper investigates the impact of sentiment as a critical risk factor in the capital market, leading to behavioral deviations in the pricing of financial assets. We propose an estimation of the asset pricing model based on the Stochastic discount factor (SDF) framework, incorporating both traditional and behavioral approaches. By extending the consumption-based asset pricing model (CCAPM) and introducing sentiment into the utility function through the Euler equations and the generalized method of moments (GMM), we analyze the Tehran Stock Exchange.

To quantify sentiment, we utilize the market turnover sentiment index as a reliable indicator. Our study covers the period from 1390 to 1399 and encompasses 18 stock exchange groups, consisting of 63 listed companies on the Tehran Stock Exchange.

The results indicate that the behavioral SDF model offers higher consistency and efficiency compared to the traditional model, aligning closely with the dynamics observed in the Tehran Stock Exchange. Moreover, the coefficient of sentiment proves to be statistically significant. In terms of risk, the behavioral model demonstrates higher coefficients than the traditional model. Interestingly, both models suggest that market participants exhibit a high time preference factor and demonstrate patience in their investment behavior.

Keywords

• Capital Asset Pricing
• GMM Method
• Stochastic Discount Factor
• Behavioral and Traditional(Classic) SDF Model
• Sentiment Index

Main Subjects

• Financial Economics