Abstract

http://ssrn.com/abstract=1663374
 
 

References (26)



 


 



Can Price Movement Toward Equilibrium Overshoot? Evidence from Share Repurchases and Subsidiary Selling


C. Edward Wang


National Taipei University - Department of Business Administration

Ramon P. DeGennaro


University of Tennessee, Knoxville - Department of Finance

December 20, 2010


Abstract:     
If a firm repurchases its own shares to signal that they are undervalued then the stock price should increase to its intrinsic level. However, it is not clear whether the price should monotonically increase to its intrinsic level or instead could reach equilibrium through a more dynamic process by which the price fluctuates around the intrinsic level and approaches that level gradually. Using unique data from the Taiwanese stock market, which allows firms to buy and sell their own shares through subsidiaries, we find strong evidence supporting the view that a price rebound does overshoot for at least some firms and the stock becomes overvalued after a repurchase announcement. Our work complements the literature regarding both seasoned equity offerings and share repurchases. Our study supports the view of Daniel, Hirshleifer, and Subrahmanyam (1998) that intermediate-term price drift is caused by investor overconfidence, which then results in market overreaction.

Number of Pages in PDF File: 46

Keywords: Open-Market Repurchases, Market Underreaction, Market Overreaction

JEL Classification: G14, G15, G35

working papers series


Download This Paper

Date posted: August 23, 2010 ; Last revised: December 16, 2010

Suggested Citation

Wang, C. Edward and DeGennaro, Ramon P., Can Price Movement Toward Equilibrium Overshoot? Evidence from Share Repurchases and Subsidiary Selling (December 20, 2010). Available at SSRN: http://ssrn.com/abstract=1663374 or http://dx.doi.org/10.2139/ssrn.1663374

Contact Information

C. Edward Wang (Contact Author)
National Taipei University - Department of Business Administration ( email )
No. 69, Sec. 2, Chien Kuo N. Rd.
Taipei, Taiwan 104
Taiwan
Ramon P. DeGennaro
University of Tennessee, Knoxville - Department of Finance ( email )
423 Stokely Management Center
Knoxville, TN 37996
United States
865-974-1726 (Phone)
865-974-1716 (Fax)
Feedback to SSRN


Paper statistics
Abstract Views: 320
Downloads: 42
References:  26

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo3 in 0.391 seconds