Dividend growth, stock valuation, and long-run risk

Claude Bergeron ()

Journal of Economics and Finance, 2013, vol. 37, issue 4, 547-559

Abstract: In this paper, we integrate the long-run concept of risk into the stock valuation process. We use the intertemporal consumption capital asset pricing model to demonstrate that a stock’s long-run dividend growth is negatively related to its current dividend-price ratio and positively related to its long-run covariance between dividends and consumption. Then, we show that the equilibrium price of a stock is determined by its current dividend, long-run dividend growth, and long-run risk. In all, our work suggests that risk cumulated over many periods represents an important parameter in assessing the theoretical value of a firm. Copyright Springer Science+Business Media, LLC 2013

Keywords: Valuation Model; Dividends; Long-Run Risk; Intertemporal Model; CCAPM; D91; G12 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:spr:jecfin:v:37:y:2013:i:4:p:547-559

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DOI: 10.1007/s12197-011-9196-5

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