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Recursive preferences, long-run risks, and stock valuation [r-libre/1666]

Bergeron, Claude (2019). Recursive preferences, long-run risks, and stock valuation. Economics Bulletin, 39 (2), 996-1004.

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Content : Published Version
 
Item Type: Journal Articles
Refereed: Yes
Status: Published
Abstract: In this note, we develop a stock valuation model with recursive preferences and long-run risks. The model is based on the Epstein and Zin (1989, 1991) and Weil (1989) recursive utility framework. Our main result indicates that the intrinsic value of a stock is negatively related to (i) the long-run covariance between dividends and aggregate consumption, and (ii) the long-run covariance between dividends and market returns. This theoretical finding suggests that the sensitivity of dividends to market returns and aggregate consumption affects the long-run risk of a firm and its equity value.
Official URL: https://www.accessecon.com/pubs/eb/default.aspx?pag...
Depositor: Bergeron, Claude
Owner / Manager: Claude Bergeron
Deposited: 08 May 2019 13:31
Last Modified: 08 May 2019 13:31

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