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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

Jean-Francois L’Her, CFA, is a senior adviser at the Abu Dhabi Investment Authority.

Tarek Masmoudi

Tarek Masmoudi is an adviser at the Abu Dhabi Investment Authority.

Ram Karthik Krishnamoorthy CFA

Ram Karthik Krishnamoorthy, CFA, is a research specialist at the Abu Dhabi Investment Authority.