Identifying Economic Shocks with Stock Repurchase Programs

This repository contains data, code, and analysis related to the study:

"Identifying economic shocks with stock repurchase programs"
by Foued Hamouda, published in Cogent Economics & Finance (2021).
DOI: 10.1080/23322039.2021.1968112

Overview

This paper investigates the relationship between stock repurchase programs and economic shocks in four developed countries: the United States, Canada, the United Kingdom, and Japan. It explores how buyback activities interact with business cycles using linear and nonlinear causality tests over the period 1998–2016.

Key contributions include:

• Evidence that buybacks and industrial production are endogenously related, with country-specific dynamics
• In Japan, prior buyback programs signal changes in economic growth
• In the US, economic growth changes drive repurchase activity, especially before the financial crisis
• Use of nonlinear causality methods to capture complex interactions beyond linear relationships
• Insights into differing repurchase behaviors due to regulatory regimes and market maturity
• Policy implications for forecasting economic turning points using buyback activity

Data Description

• Monthly and quarterly data from 1998 to 2016
• Countries covered: United States, Canada, United Kingdom, Japan
• Stock repurchase data sourced from Thomson Financial DataStream and official corporate financial statements
• Business cycle proxied by industrial production growth rate from OECD data
• Repurchases measured based on value of purchases of common and preferred stock, adjusted by share prices
• Data preprocessing includes seasonal adjustment and stationarity transformations

Methodology

• Linear Granger Causality Tests: To examine directional predictability between buybacks and business cycles
• Nonlinear Causality Tests (Diks and Panchenko, 2006): To capture nonlinear predictive relationships beyond linear VAR models
• Use of lag selection criteria (Akaike Information Criterion) and residual-based testing for nonlinear relations
• Comparison of pre-crisis (before 2007–2008 financial crisis), post-crisis, and full-sample periods to assess structural changes

Key Findings

• Buybacks and business cycles are mutually determined in Japan and the US, but with different causal directions
• In Japan, increases in repurchase programs precede changes in economic growth, suggesting a leading indicator role
• In the US, economic growth changes cause fluctuations in repurchase activity, especially before the financial crisis
• Nonlinear causality tests confirm endogenous relations and reveal complexities missed by linear models
• Regulatory differences explain varying repurchase behaviors across countries
• Buybacks serve as flexible payout mechanisms, especially during times of economic distress
• Policy makers can use repurchase activity as an early signal of economic turning points

Citation

If you use this repository for research or reference, please cite the original article: Hamouda, F. (2021). Identifying economic shocks with stock repurchase programs. Cogent Economics & Finance, 9(1), 1968112. https://doi.org/10.1080/23322039.2021.1968112

Contact

For questions, suggestions, or collaboration inquiries, please contact:
Foued Hamouda – foued.hamouda@isg.rnu.tn