Dividend growth, stock valuation, and long-run risk |
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Authors: | Claude Bergeron |
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Institution: | 1. Université du Québec à Montréal, TéLUQ, 455, rue du Parvis, Québec, Québec, G1K 9H5, Canada
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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. |
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