US and European stock market indices: The role of share buybacks

When comparing stock market indices in the United States and the euro zone, we see a much faster rise in the US stock market index. But we must be cautious in interpreting this faster rise in U.S. stock indices. This is because: It does not mean that the total return on equities is higher in the United States than in the euro zone. Shareholders are remunerated primarily by share buybacks in the United States, i.e. through capital gains, and mainly through dividends in the euro zone, where the dividend yield is much higher than in the United States; It is largely the mechanical result of share buybacks in the United States, which reduce the number of shares and therefore increase earnings per share and the value of companies per share. This mechanical effect of share buybacks explains more than 80% of the difference in stock market index growth between the United States and the euro zone .