Abstract
Introduction: Extensive evidence shows that consumption-based asset pricing models (CCAPM) proposed by Lucas (1978) and Breeden (1979) have failed to explain average stock returns in cross-sectional data. In this context, we can refer to the studies of Breeden, Gibbons and Litzenberg (1989), Letas and Ludwigson (2001), Jacobs and Wong (2004). In response to this failure, several studies used other variables instead of consumption growth in a single-factor model to improve the performance of the mentioned structure (such as the works of: Parker and Julliard (2005), Jaganthan and Wong (2007), Savo (2011) and Kroenke (2017)). In none of the domestic studies, inflation has not been used as a risk factor, and this study aims to fill this gap and use it to study the impact of monetary illusion on the desirability of Iranian households in the period under review. In fact, the innovation of this article compared to the previous studies conducted inside the country is that, firstly, with the inclusion of the inflation variable in the household preferences function, the CCAPM model has been developed in such a way that the inflation variable can be entered in the household preferences function; Second, reversible preferences and non-reversible power utility have been used to estimate the monetary illusion parameter. Thirdly, in this research, the system of equations includes the return of various assets such as bank interest rate, stock return, housing return and labor wage return, and the parameters of the equations have been estimated by using different and appropriate tools. Methodology: Mayo (2018), in order to include inflation as a risk factor and define a parameter that shows the degree of monetary illusion of brokers, specified a three-factor macro model for asset pricing including inflation rate, consumption growth and asset yield in the CCAPM structure. The underlying framework of the model includes a recursive inter-period utility presented by Epstein-Zine and Weil