Net Buybacks and the Seven Dwarfs
During the last two decades, the relationship between economic growth and equity returns has been weak across global stock markets. Economic growth has not been a good proxy for dividend-per-share growth. In the majority of the stock markets, issuance has exceeded buybacks and has resulted in a dilution effect. In several markets, however, buybacks have exceeded issuance, resulting in an accretion effect. The main finding of our study is that, whether investors use a dividend model or a total payout model to decompose equity returns, net buybacks explain more than 80% of the cross-sectional dispersion of stock market returns.
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The views expressed in this article are those of the authors in their personal capacity and do not necessarily reflect the views of the Abu Dhabi Investment Authority (ADIA). Although the authors have taken care to ensure that the information herein is accurate at the time of publication, neither the authors nor ADIA make any representation or warranty with respect to the accuracy of this article.