The Nature and Persistence of Buyback Anomalies

Testing the managerial timing ability: Evidence from stock repurchases in Japan

“…Some empirical studies show positive market reactions to stock repurchase announcements and positive long-term performance after the announcements (Lakonishok and Vermaelen, 1990;Ikenberry et al, 1995;Chan et al, 2004Chan et al, , 2007Peyer and Vermaelen, 2009). Although these results support the undervaluation hypothesis, the analyses based on repurchase announcements are insufficient to test the managerial timing ability.…”

“…To avoid these problems, more robust statistical tests, such as the examination of long-term abnormal returns of calendar-time portfolios, are needed. While Chan et al (2007) and Peyer and Vermaelen (2009) take account of this problem in the context of repurchase announcements, to our knowledge there are no studies that employ a calendar-time portfolio approach for the analysis of actual repurchase activities.…”

“…InPeyer and Vermaelen (2009), firm size is negatively correlated with undervaluation measures. Thus, among firms with large market capitalization, the degree of mispricing is lower, which makes value-weighting methods difficult to detect abnormal returns.…”

The performance of Taiwanese firms after a share repurchase announcement

“…Return anomalies among the firms conducting buybacks do not seem to disappear over time. Accelerated share repurchases in which a firm enters into a contract with an intermediary, typically an investment bank, to buy back shares tend to produce more positive average abnormal stock returns (Bargeron et al 2011;Peyer and Vermaelen 2009). Bozanic (2010) argue that firms which make repurchases are jointly timing their repurchases to perceived undervaluation and the presence of discretionary cash flow.…”

“…First, the market may underreact to the repurchase after the announcement, generating positive longer-term returns for the firms (Wang et al 2013). Second, the market may overreact to bad news prior to the repurchase and return to normal pricing in the later period with more positive returns (Peyer and Vermaelen 2009). In either circumstance, investors could invest in the firms that buy back their outstanding shares to take advantage of the mispricing.…”