Financial Analysts Journal 24 September 2018 Volume 74 Issue 4
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.
About the Author(s)
Jean-Francois L’Her, CFA, is a senior adviser at the Abu Dhabi Investment Authority.
Tarek Masmoudi is an adviser at the Abu Dhabi Investment Authority.
Ram Karthik Krishnamoorthy, CFA, is a research specialist at the Abu Dhabi Investment Authority.