Dividend sensitivity to economic factors, stock valuation, and long-run risk

Claude Bergeron

Finance Research Letters, 2013, vol. 10, issue 4, 184-195

Abstract: In this paper, we develop a theoretical stock valuation model that takes into account the long-run sensitivity of dividends to various economic factors. Our valuation process integrates the multidimensionality of uncertainty, as well as the long-run concept of risk (recently proposed in the literature). More precisely, we demonstrate that a stock’s long-run dividend growth is negatively related to its current dividend–price ratio and linearly related to N sensitivity coefficients, given by the long-run sensitivity between dividends and economic factors. Then, we show that the equilibrium price of a stock is a function of its current dividend, long-run dividend growth, and N risk parameters.

Keywords: Multifactor model; Intertemporal model; Stock valuation; CCAPM; Long-run risk (search for similar items in EconPapers)
JEL-codes: D91 G12 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:10:y:2013:i:4:p:184-195

DOI: 10.1016/j.frl.2013.07.004

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