Asset Pricing Modeling Test Based on Behavioral Stochastic Discount Factor (SDF):A Case Study of Tehran Stock Exchange

In this paper, we estimate the asset pricing model based on random discount factor (SDF) according to traditional and behavioral approach in the Tehran Stock Exchange by extending the consumption-based asset pricing model (CCAPM), and introducing the sentiment into the utility function, by means of the Euler equations and the generalized method of moments (GMM). To achieving the goal, we apply two indexes of sentiment: the market turnover and the volatility premium. The investigation period is 1390-99 and the case study involves 18 stock exchange groups including 63 companies has listed on the Tehran Stock Exchange. The results demonstrate that the behavioral SDF model is more consistent and efficient with the facts of the Tehran Stock Exchange than the traditional model, and the coefficient of sentiment is significant. The coefficient of risk according to the behavioral model is higher than the traditional model, and in both cases, people have a high time preference rate and are patient.