Aggregate Net Stock Buybacks and Future Stock Market Returns

Is aggregate net U.S. public company stock buyback activity a useful predictor of U.S. stock market return? To investigate, we:

• Retrieve Nonfinancial Corporate Business; Corporate Equities; Liability, Transactions and multiply values by -1 as a quarterly aggregate net stock buyback proxy (stock pulled from the market).
• Retrieve Nonfinancial Corporate Business; Corporate Equities; Liability, Level as a quarterly equity market size proxy.
• Estimate the market impact of net buybacks by dividing the buyback proxy by the market size proxy (net buyback ratio).
• Retrieve quarterly S&P 500 Index (SP500) levels to compute contemporaneous returns.
• Calculate quarterly lead-lag correlations between the net buyback ratio and SP500 returns.
• Construct average next-quarter and two-quarters-hence SP500 returns by ranked fifth (quintile) of quarterly net buyback ratio.

Using quarterly data for the specified series as available during December 1951 through September 2026, we find that: