Stock Buyback Announcements: What Happens to Share Prices

Stock buyback announcements have historically been followed by above-benchmark returns, at least in older US data. Ikenberry, Lakonishok and Vermaelen (1995) studied open market repurchase announcements made between 1980 and 1990 and reported an average abnormal four-year buy-and-hold return of 12.1 percent, and a far larger figure for stocks they classed as “value.” Whether that pattern still exists is disputed. Peyer and Vermaelen (2009) reject the idea that it has disappeared, while Fu and Huang (2016) find that it is gone for events in 2003–2012. This article sets out both readings, explains how repurchases work in practice, and covers the rules and the tax that now surround them.

Stock Buyback Announcements by the Numbers

What Ikenberry, Lakonishok and Vermaelen found

The reference study is Ikenberry, Lakonishok and Vermaelen (1995), published in the Journal of Financial Economics. The authors examined “long-run firm performance following open market share repurchase announcements which occurred during the period 1980 to 1990.” Their headline result: the average abnormal four-year buy-and-hold return, measured after the initial announcement, was 12.1 percent.

Two terms matter here. Abnormal means return beyond what the study’s benchmark would predict, not the raw return. Buy-and-hold means the return from owning the shares over the whole window rather than trading in and out. The figure covers all repurchasers in a 1980–1990 sample. It is a historical average from one period, and it should not be read as an expected return today.

The authors’ interpretation was that the market reacts too little to the news. In their words, “at least with respect to value stocks, the market errs in its initial response and appears to ignore much of the information conveyed through repurchase announcements.” If the initial price move fully reflected the news, there would be no drift afterward. The reported drift is the evidence for underreaction. This is the pattern often called the buyback anomaly.

Value stocks versus glamour stocks

The average hides a sharp split. For “value” stocks, which the authors describe as “companies more likely to be repurchasing shares because of undervaluation,” the average abnormal return was 45.3 percent. For repurchases announced by “glamour” stocks, “where undervaluation is less likely to be an important motive, no positive drift in abnormal returns is observed.”

The 45.3 percent is a subsample figure. It is not directly comparable with the 12.1 percent full-sample average, and it is also a four-year abnormal return from 1980–1990, not an annual rate. What the split does show is that the reason a company buys back stock appears to matter. An announcement from a firm whose shares look cheap carried the signal; an announcement from a firm whose shares were already richly valued did not.

Does the buyback effect still exist? Two readings

The strongest recent evidence points in both directions, and fairness requires presenting both.

The anomaly persists. Peyer and Vermaelen (2009), in the Review of Financial Studies, write: “Using recent data, we reject the hypothesis that the buyback anomalies first reported by Lakonishok and Vermaelen (1990) and Ikenberry, Lakonishok, and Vermaelen (1995) have disappeared over time.” Their explanation is that “open market repurchases are a response to a market overreaction to bad news: significant analyst downgrades, combined with overly pessimistic forecasts of long-term earnings.” On this view, companies buy when the market is too gloomy, and the return comes as sentiment corrects. This article does not quote the paper’s sample window or return magnitudes, because the abstract does not give them.

The anomaly has faded. Fu and Huang (2016), in Management Science, report that “the long-run abnormal returns following both stock repurchases and seasoned equity offerings disappear for the events in 2003-2012.” They tie the change to a more efficient market, citing institutional investment, lower trading costs, liquidity, and governance and disclosure rules. They also say that “recent events of stock repurchases and offerings are motivated more by business-operating reasons than to exploit mispricing.” If firms increasingly buy back stock for reasons other than a perceived bargain, the announcement carries less information about undervaluation.

The abstracts we reviewed do not reconcile the two papers, so we do not claim to know which sample or method explains the gap. A third study looks outside the US. Manconi, Peyer and Vermaelen examined “over 9,000 buyback announcements from 31 non-U.S. countries” and, in the working-paper abstract, report support for the US-based results: significant positive short- and long-term excess returns on average. They add that returns depend on how likely the firm is to be undervalued, on market efficiency and liquidity, and on option compensation. Our quotation comes from the working-paper version; the paper was later published in the Journal of Financial and Quantitative Analysis.

From announcement to purchase: how open-market repurchases work

An open market repurchase is a company buying its own shares on the market. The studies above measure returns from the announcement. The buying itself is a separate step that happens afterward, and the rules govern that second step. Issuers must report their repurchasing activity under Item 703 of Regulation S-K, whether or not they rely on the safe harbor described next.

The key rule is Rule 10b-18. It is a safe harbor from manipulation liability under Exchange Act Section 9(a)(2) and Rule 10b-5 for repurchases that meet conditions on the manner, timing, price and volume of the purchases. Compliance is voluntary. The conditions apply daily: an issuer’s repurchases must satisfy each of the rule’s four conditions on a given day, and failing one removes the safe harbor for that day.

The volume condition limits purchases to 25 percent of the average daily trading volume (ADTV) of the stock, measured over the four calendar weeks before the week of purchase. Once a week, an issuer may instead make one block purchase if other conditions are met. Illustrative example: if a stock’s ADTV were 1,000,000 shares, the 25 percent limit would allow 250,000 shares of purchases on that day under the usual test.

The 1% excise tax and the size of the buyback market

Since 2023 repurchases carry a federal excise tax. The IRS states that Section 4501 “imposes a 1% excise tax on the repurchase of corporate stock by certain publicly traded corporations or their specified affiliates effective for repurchases after Dec. 31, 2022.” The statute sets the tax at 1 percent of the fair market value of stock the corporation repurchases during the taxable year. Illustrative example: a company repurchasing $1 billion of its stock in a year would owe about $10 million at the headline rate, before any adjustments. S&P Dow Jones Indices reported that the net buyback tax reduced Q4 2024 operating earnings of S&P 500 companies by 0.37 percent.

The market is large. SEC Chair Gensler said buybacks “amounted to nearly $950 billion” in 2021 and reportedly reached more than $1.25 trillion in 2022; that is a statement by the SEC chair, not an S&P figure. S&P Dow Jones Indices counts S&P 500 companies only. It reported a record $942.5 billion for full-year 2024, up 18.5 percent from $795.2 billion in 2023, with a 12-month peak of $1.005 trillion in June 2022. For the 12 months to September 2025 it reported a record $1.020 trillion, up from $918.4 billion, and $249.0 billion in the third quarter of 2025. We do not give a full-year 2025 total because we could not confirm one.

Disclosure rules: the 2023 SEC amendments and the court challenge

On May 3, 2023 the SEC adopted share repurchase disclosure amendments, including “requiring issuers to provide daily repurchase activity on a quarterly or semi-annual basis, depending on the type of issuer.” The rule was challenged in court in Chamber of Commerce of the USA v. SEC. According to a December 2023 summary by the law firm Debevoise & Plimpton, the rules were vacated by the Fifth Circuit on December 19, 2023, and issuers are not required to comply with their disclosure requirements. We rely on that law-firm summary and have not reviewed the court’s opinion.

For investors the practical point is data: the rule was meant to require daily repurchase activity to be reported, and with it vacated, the announcement itself and the existing Item 703 reporting remain the main public sources described here.

How practitioners treat announcements as a signal

The evidence suggests reading a buyback announcement as an event flag to be examined, not as a standalone trade. Three questions follow from the research.

• Does the stock look cheap? The 1995 evidence separates value from glamour stocks, so valuation context is central.
• Is the buyback a response to bad news? Peyer and Vermaelen’s explanation points to firms buying after downgrades and pessimistic forecasts. Our guide to 8-K filings and material events explains where such company announcements are disclosed.
• Are other signals consistent? A company buying its own stock and its executives buying personally are different signals; see our article on CEO stock purchases. Buybacks can also lift earnings per share by shrinking the share count, so it is worth checking the underlying numbers, as discussed in earnings quality and accruals.

Event-driven signals of this kind belong to a wider idea of seeking returns that are not explained by broad market moves; our primer What Is Alpha? covers the concept.

How Alpha Suite uses this

Alpha Suite’s buyback strategy scans 8-K filings for newly announced open-market repurchase programs and treats them as a signal in the spirit of Ikenberry, Lakonishok and Vermaelen (1995). See the buyback announcements strategy page for how the signal is presented.

Limitations

The headline numbers are old and specific. The 12.1 percent and 45.3 percent figures are abnormal four-year buy-and-hold returns from a 1980–1990 sample, and the 45.3 percent comes from a value subsample chosen by the authors’ classification. They are not forecasts. The literature is also split: one paper says the anomaly survived in more recent data, another says it vanished for 2003–2012 events, and this article does not assert that the effect still works. Costs, capacity and the timing of entry after an announcement are not addressed by the figures above.

The sourcing has gaps. The Peyer and Vermaelen sample and magnitudes were not reviewed, the international result is quoted from a working-paper abstract, and the Fifth Circuit vacatur is confirmed here only through a law-firm summary. On the excise tax we describe only the headline rate and do not cover its netting rules or exceptions. Finally, an announcement is not a purchase: the evidence concerns what follows announcements, not what each company then does in the market.

FAQ

Do stock buybacks increase the stock price?

In the 1980–1990 sample studied by Ikenberry, Lakonishok and Vermaelen (1995), announcing firms earned an average abnormal four-year buy-and-hold return of 12.1 percent after the announcement. The effect was concentrated in value stocks, and later research disagrees on whether it persists.

Is the buyback anomaly still there?

It is contested. Peyer and Vermaelen (2009) reject the hypothesis that it has disappeared, while Fu and Huang (2016) report that long-run abnormal returns disappear for events in 2003–2012. A study of 31 non-US countries supports the original US findings on average.

What is SEC Rule 10b-18?

It is a voluntary safe harbor from manipulation liability for issuer repurchases that meet four conditions on manner, timing, price and volume, tested daily. One condition caps daily purchases at 25 percent of average daily trading volume, with a once-a-week block purchase exception.

Is there a tax on stock buybacks?

Yes. Section 4501 of the Internal Revenue Code imposes a 1 percent excise tax on repurchases of stock by certain publicly traded corporations, effective for repurchases after December 31, 2022.

References

1. Fu, X. & Huang, S. (2016). “The Persistence of Long-Run Abnormal Returns Following Stock Repurchases and Offerings.” Management Science, 62(4), 964–984. doi:10.1287/mnsc.2015.2150
2. Ikenberry, D., Lakonishok, J. & Vermaelen, T. (1995). “Market Underreaction to Open Market Share Repurchases.” Journal of Financial Economics, 39(2–3), 181–208. doi:10.1016/0304-405x(95)00826-z
3. Manconi, A., Peyer, U. & Vermaelen, T. (published online 2018). “Are Buybacks Good for Long-Term Shareholder Value? Evidence from Buybacks around the World.” Journal of Financial and Quantitative Analysis, 54(5), 1899–1935. doi:10.1017/s0022109018000984 (working paper: doi:10.2139/ssrn.2330807)
4. Peyer, U. & Vermaelen, T. (2009). “The Nature and Persistence of Buyback Anomalies.” The Review of Financial Studies, 22(4), 1693–1745. doi:10.1093/rfs/hhn024
5. U.S. Securities and Exchange Commission. “SEC Adopts Amendments to Modernize Share Repurchase Disclosure.” Press release 2023-85, May 3, 2023. sec.gov
6. 17 CFR 240.10b-18, “Purchases of certain equity securities by the issuer and others.” Cornell LII
7. Debevoise & Plimpton (December 2023). “Fifth Circuit Vacates SEC Share Repurchase Rules.” debevoise.com
8. Internal Revenue Service. “Excise tax” (Section 4501). irs.gov; 26 U.S.C. § 4501, Cornell LII
9. S&P Dow Jones Indices. Press releases of March 19, 2025 (S&P 500 Q4 2024 buybacks) and December 18, 2025 (S&P 500 Q3 2025 buybacks). March 2025; December 2025