HUANG-MEIER, W. and FREEMAN, M.C., 2016. Aggregate dividends and consumption smoothing. International Review of Financial Analysis, 42, pp.324-335.
We show that net equity payouts from the corporate sector play a crucial role in helping individuals manage their consumption path across the business cycle. In particular, we show that, as investors’ desire to smooth consumption increases, optimal aggregate dividends become both more volatile and more counter-cyclical to help counterbalance
pro-cyclical labor income. These findings are robust to whether or not agency conflicts exist in the economy.
This paper was accepted for publication in the journal International Review of Financial Analysis and the definitive published version is available at http://dx.doi.org/10.1016/j.irfa.2015.08.008