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Dividend growth, stock valuation, and long-run risk

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  • Claude Bergeron

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

Suggested Citation

  • Claude Bergeron, 2013. "Dividend growth, stock valuation, and long-run risk," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 37(4), pages 547-559, October.
    • Handle: RePEc:spr:jecfin:v:37:y:2013:i:4:p:547-559
    DOI: 10.1007/s12197-011-9196-5
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    Cited by:

    1. Claude Bergeron & Tov Assogbavi & Jean-pierre Gueyie, 2020. "Conditional capital asset pricing model, long-run risk, and stock valuation," Economics Bulletin, AccessEcon, vol. 40(1), pages 77-86.
    2. Claude Bergeron, 2019. "Recursive preferences, long-run risks, and stock valuation," Economics Bulletin, AccessEcon, vol. 39(2), pages 996-1004.

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    More about this item

    Keywords

    Valuation Model; Dividends; Long-Run Risk; Intertemporal Model; CCAPM; D91; G12;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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