By definition, repurchase yield is always negative as the objective is to reduce the number of ordinary shares outstanding in the market. So if we follow the G-K formula: Expected income return = Dividend yield - Repurchase yield = 0.5% - (-0.5%) = 1.0%
Alternatively you can think like this: If a company repurchase their shares outstanding from the market (kept as treasury shares for their company share performance scheme), what will happen to their expected rate of return on equity? Logically it should enhanced their return just as earning per share will be higher due to lower number of shares outstanding.
Conversely, an issue of new shares will mean a positive repurchase yield, as it increase the number of shares outstanding in the equity market, but it should reduce the expected rate of return on equity.
I agree with the comments here. I was under the impression that if they give you the repurchase yield and it’s negative, you would put it into the Grinold-Kroner equation with the negative sign and the net result would be a positive.
But then I did the 2009 past CFAI exam and it was the opposite. They give you the inputs for the GK equation, specifically:
Equity Repurchase yield = -0.5
Dividend Yield = 4.0
When asked for the Income return, which is the Div. Yield - (ΔS), they did:
4 - .5 = 3.5%
I did the opposite and ended up with 4.5% and got it wrong. Pretty frustrating way to get an answer wrong since the concept is very simple.