Dividend persistence and dividend behaviour

This article demonstrates how a spurious regression problem caused by
dividend persistence is compounded by a spurious correlation problem when
the dependent and independent variables in dividend behaviour regressions are
ratios composed of common component variables. This article utilises a
simulation procedure to take account of these problems, with the findings
implying that extreme care should be taken when using ratios as predictor or
explanatory variables in time series regression. This article introduces a
reformulated Lintner first difference dividend behaviour model that is not
subject to spurious regression in which past prices predict subsequent changes
in dividends.