Dividend sensitivity to economic factors,stock valuation,and long-run risk |
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Authors: | Claude Bergeron |
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Institution: | TÉLUQ, Université du Québec, 455, rue du Parvis, Québec, Québec, Canada |
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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. |
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Keywords: | Multifactor model Intertemporal model Stock valuation CCAPM Long-run risk |
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