Market Myths Meet Mixed Evidence: A Comprehensive Analysis
Corporate share buybacks totaling a record $942.5 billion in 2024 represent the single largest source of net equity demand in U.S. markets. When companies enter blackout periods ahead of quarterly earnings, they suspend this buying activity, removing an estimated $2-5 billion daily from market demand.
December buyback blackouts cause significant market weakness due to removed corporate demand.
Academic research shows NO statistically significant negative returns during blackout periods. Returns during blackouts (+3.2% annualized) are virtually identical to open windows (+3.3%).
This represents one of the market's most persistent analytical debates. The truth lies in understanding both the mechanical reality of reduced corporate demand and the compounding factors unique to December that may matter more than the blackouts themselves.
Source: O'Shaughnessy Asset Management analysis
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45% of S&P 500 companies begin blackouts approximately 14 days before quarter close.
December blackouts extend 5-7 weeks (vs. 4-5 weeks other quarters) due to year-end timing.
76% of companies resume buybacks within 1-2 trading days of earnings release.
Note: ~60% of programs use Rule 10b5-1 plans to continue buying through blackouts
Methodology: Analyzed 136 months of data (March 1994 - October 2018)
Finding: "Nearly even split between positive and negative excess returns" with no significant alpha (p-values > 0.05)
Annualized excess returns
Annualized excess returns
"The excess returns from stocks that are repurchasing stocks are driven NOT from the stock repurchases, but rather from the information coming from earnings reports—the underlying economic value generation of the companies."
Key Insight: The high correlation reflects confounding variables—both buybacks and prices respond to the same economic factors, not a causal relationship.
Review of Financial Studies - Analysis of ~6,500 repurchase programs:
While blackouts alone may not drive systematic weakness, December creates conditions found in no other quarter:
Volume drops to ~20% of normal on Christmas Eve/Boxing Day
Christmas-New Year week sees only 50-70% normal volume
This amplifies any selling pressure and doesn't occur in Q1-Q3
Stocks in tax-loss baskets fall 7%+ during initial wave
Additional pressure mid-November through mid-December
Stocks down >15% YTD underperform by ~4% during this window
Fund managers adjust portfolios before year-end disclosures
Institutions "sell more loser small stocks in Q4"
Most pronounced for December as investors evaluate calendar-year performance
Required annual distributions force sales mid-November to mid-December
Only quarter where ~70% of companies face simultaneous reporting
Creates most synchronized blackout period of the year
Context: Sharp S&P 500 declines during blackout period
Market Reaction: Bloomberg cited "buyback boogeyman" as contributing factor
JPMorgan Analysis: Identified blackouts as "key driver" of October selloff
Outcome: Market bottomed before Christmas, rallied strongly into 2019
Goldman Buyback Desk: Volume spiked to 2.8-3x normal daily average
Key Insight: Companies are "aggressive buyers during weakness" when windows are open
Implication: Support that disappears entirely during blackouts
Pattern: Sharp selling during options expiration week
Bottom: Before Christmas
Rally: Strong performance into 2023
JPMorgan's monthly data showed October and December repurchases were only "slightly smaller" than November.
Why? Companies used 10b5-1 plans to maintain buying through blackouts.
CNBC Caution: "Next time you hear some trader blame 'blackout periods' for why the market dropped, take it with a grain of salt."
Q4 typically represents Goldman's most active buyback quarter
December blackouts remove substantial corporate demand at the worst possible time. Yet academic evidence shows no statistically significant negative returns during blackout periods themselves.
Blackouts create a "demand vacuum" that pressures prices downward, especially in December.
No statistical difference in returns. Earnings quality drives performance, not buyback timing.
December equity buyback blackouts represent a mechanical reduction in one demand source during an already challenging seasonal period. The practical implication is heightened awareness—not panic.
This report synthesizes data from State Street Global Advisors, O'Shaughnessy Asset Management, Goldman Sachs, JPMorgan, S&P Global, Deutsche Bank, Gibson Dunn, SEC regulatory filings, academic research from the Review of Financial Studies, Russell Investments, and market data from Bloomberg, CNBC, and FactSet covering 1994-2024.