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We develop and estimate a model of the dynamic behavior of aggregate corporate dividends as a function of the change in permanent earnings of firms. Although structured along the lines of the Lintner-Brittain-FamaBabiak models of individual-firm dividend behavior, the model uses changes in stock prices instead of accounting earnings to measure permanent earnings changes. The performance of the model is compared with both the accounting earnings-based models and the trend-autoregressive model associated with Shiller (1981a).
Marsh et al. (Thu,) studied this question.