Determinants of Cyclical Aggregate Dividend Behavior
The purpose of this paper is to find the determinants of cyclical real aggregate dividends. In the literature, dividends are hypothesized to be proportional to real permanent earnings, with a smoothing factor that is between zero and +1. An additional postulate is that dividends adjust to a target dividend payout ratio. Managers will only change dividends if they can be sure that permanent earnings have increased. This allows for the payout ratio to be persistent and avoids reversing the payout decision if temporary earnings fall. The contribution of this paper is six-fold. The first is to generate cyclical changes of the variables by an appropriate filtering rule, a rule that is a common usage in macroeconomics. The second is to consider two proxies for real permanent earnings: real stock market prices, keeping real interest rates constant, and long term real interest rates, keeping market prices constant. The third is to adjust the estimation procedure for conditional heteroscedasticity. The fourth is to test whether transitory real earnings have an impact on dividends. The fifth is to find out if there are symmetrical effects of positive and negative earnings shocks. The last is to carry out stability tests over different time periods. One of the major findings is that, the three independent variables--stock market prices, interest rates, and transitory earnings, all have a significant effect on dividends, and that the smoothing factor is surprisingly the same for all three independent variables.
Volume (Year): 2 (2012)
Issue (Month): (August)
|Contact details of provider:|| Postal: 17 Alton Towers Circle, Unit 101 Toronto, ON, M1V3L8, Canada|
Web page: http://www.bapress.ca
|Order Information:|| Postal: 17 Alton Towers Circle, Unit 101 Toronto, ON, M1V3L8, Canada|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Terry A. Marsh and Robert C. Merton., 1986.
"Dividend Behavior for the Aggregate Stock Market,"
Research Program in Finance Working Papers
163, University of California at Berkeley.
- Jarque, Carlos M. & Bera, Anil K., 1980. "Efficient tests for normality, homoscedasticity and serial independence of regression residuals," Economics Letters, Elsevier, vol. 6(3), pages 255-259.
- Robert J. Shiller, 1980.
"Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?,"
NBER Working Papers
0456, National Bureau of Economic Research, Inc.
- Shiller, Robert J, 1981. "Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?," American Economic Review, American Economic Association, vol. 71(3), pages 421-436, June.
- Doron Nissim, 2001. "Dividend Changes and Future Profitability," Journal of Finance, American Finance Association, vol. 56(6), pages 2111-2133, December.
- Kao, Chihwa & Wu, Chunchi, 1994. "Tests of Dividend Signaling Using the Marsh-Merton Model: A Generalized Friction Approach," The Journal of Business, University of Chicago Press, vol. 67(1), pages 45-68, January.
- Shlomo Benartzi & Roni Michaely & Richard Thaler, 1997.
"Do Changes in Dividends Signal the Future or the Past?,"
CRSP working papers
455, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- Benartzi, Shlomo & Michaely, Roni & Thaler, Richard H, 1997. " Do Changes in Dividends Signal the Future or the Past?," Journal of Finance, American Finance Association, vol. 52(3), pages 1007-1034, July.
- Shlomo Benartzi & Roni Michaely & Richard Thaler, . "Do Changes in Dividends Signal the Future or the Past?," CRSP working papers 327, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- Robert J. Hodrick & Edward Prescott, 1981.
"Post-War U.S. Business Cycles: An Empirical Investigation,"
451, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
- Pan, Ming-Shiun, 2001. "Aggregate Dividend Behavior and Permanent Earnings Hypothesis," The Financial Review, Eastern Finance Association, vol. 36(1), pages 23-38, February.
- Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
- Garrett, Ian & Priestley, Richard, 2000. "Dividend Behaviour and Dividend Signaling," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(02), pages 173-189, June.
When requesting a correction, please mention this item's handle: RePEc:bap:journl:120306. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Carlson)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.