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

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  • Bergeron, Claude

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.

Suggested Citation

  • Bergeron, Claude, 2013. "Dividend sensitivity to economic factors, stock valuation, and long-run risk," Finance Research Letters, Elsevier, vol. 10(4), pages 184-195.
    • Handle: RePEc:eee:finlet:v:10:y:2013:i:4:p:184-195
    DOI: 10.1016/j.frl.2013.07.004
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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

    Multifactor model; Intertemporal model; Stock valuation; CCAPM; Long-run risk;
    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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