Stock Returns and Open‐Market Stock Repurchase Announcements

Abstract

Recent studies document stock price underreactions and overreactions. This evidence is extended by studying openmarket stock repurchase announcements. Repurchase announcements were chosen for the study because of the uncertainty regarding the appropriate interpretation of the repurchase announcement. Cross-section regression models are used to test the relation between the reaction to the repurchase announcement and returns in subsequent periods. The results indicate that the market overreacts to repurchase announcements that are deemed to be "good news" by the market. Neither reversal nor drift is observed following repurchase announcements considered to be "bad news" by the market. The results are robust and are not driven by a few influential observations, beta shifts, or bid-ask bounce.

Short-Term Price Effects of Stock Repurchases in Turkish Capital Markets

“…By and large, although coefficients are different in economic and statistical significance, univariate and multivariate analysis results complement each other and it is possible to conclude that analyses results are congruent with the ones obtained in the US (Vermaelen, 1981;Netter & Mitchell, 1989;Ikenberry, Lakonishok, & Vermaelen, 1995;Liu & Ziebart, 1997), Canadian (Ikenberry, Lakonishok, & Vermaelen, 2000), Hong Kong (Zhang, 2005) and Japanese (Hatakeda & Isagawa, 2004) markets.…”

“…From the performance point of view, research shows positive relationship between repurchases and abnormal returns. Especially, several research conducted in the US market by Vermaelen (1981), Netter and Mitchell (1989), Ikenberry, Lakonishok and Vermaelen (1995) and Liu and Ziebart (1997) emphasizes that share prices signicantly increase as a consequence of stock repurchases. Research outside the US market also reveals similar results.…”

The decision model for minimum quantities of stock repurchases

“…According to prior studies on treasury stocks, this study also finds that the treasury stock system certainly promote an upward stock price (Liu and Ziebart (1997) [17]; Dittmar (2000) [7]; Lee (2001) [15]). Hence, treasury stock system has a positively economic effect on the whole securities market.…”

“…Tsetsekos (1993) [24] there has a positive information effect on announcement of repurchasing treasury stocks from public market. Liu and Ziebart (1997) [17] investigate the effect of market reaction on announcement of treasury stocks; the results show that most of announcements are viewed as good news 4 . Announcement of repurchasing stocks cause excessive rising on stock price, it means that there is short-term price reversal phenomenon.…”

“…For example, they investigated repurchasing characteristics and motivation of treasury stocks (Wansley et al (1989) [27]; Tsetsekos et al (1991) [25]; Barth and Kasznik (1999) [2]; Jagannathan et al (2000) [12]; Fenn and Liang (2001) [11]), explored the association between announcement of treasury stocks and stock price (Netter and Mitchell, 1989 [19]; Tsetsekos, 1993 [24]; Liu and Ziebart (1997) [17]; Dittmar (2000) [7]; Lee (2001) [15]; Lin (2001) [16]), and examined different treasury stock repurchasing hypotheses from repurchasing motivation (Masulis (1980) [18]; Dann (1981) [6]; Vermaelen (1981) [26]; Easterbrook (1984) [9]; Jensen (1986) [13]; Netter and Mitchell (1989) [19]; Pugh and Jahera (1990) [21]; Comment and Jarrell (1991) [5]; Dunsby (1994) [8]; Jolls (1996) [14]; Opler and Titman (1996) [20]; Fenn and Liang (1997) [10...…”