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Claude Bergeron, Tov Assogbavi and Jean-pierre Gueyie
''Conditional capital asset pricing model, long-run risk, and stock valuation''
( 2020, Vol. 40 No.1 )
In this note, we integrate the long-run concept of risk into the stock valuation process, using the conditional capital asset pricing model. Our main result indicates that the intrinsic value of a stock is positively related to its long-run dividend growth rate, and negatively related to its long-run covariance between dividends and aggregate dividends. This result suggests that the theoretical framework of the conditional capital asset pricing model can be used to examine the effect of long-run risk on firm values. This result also suggests that the long-run covariance between dividends and aggregate dividends represents a relevant measure of risk, without assuming anything about aggregate consumption.
Keywords: Asset pricing, CAPM, long-run risk, stock valuation, dividends
JEL: G1 - (G11, G13, G13) Portfolios, Investments, Asset and Futures Pricing, Trading Volume & Bond Interest Rates
Manuscript Received : Dec 17 2019 Manuscript Accepted : Feb 05 2020

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