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| Claude Bergeron, Tov Assogbavi and Jean-pierre Gueyie |
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| ''Conditional capital asset pricing model, long-run risk, and stock valuation'' |
| ( 2020, Vol. 40 No.1 ) |
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| 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. |
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| Keywords: Asset pricing, CAPM, long-run risk, stock valuation, dividends |
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| Manuscript Received : Dec 17 2019 | | Manuscript Accepted : Feb 05 2020 |
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