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The Price Impacts of Open Market Repurchase TradesWilliam J. McNallyWilfrid Laurier University - School of Business & Economics Brian F. SmithWilfrid Laurier University Thomas BarnesBrock University - Department of Economics Journal of Business Finance & Accounting, Forthcoming Abstract: This paper analyzes a database of 60,000+ individual repurchase trades from the Toronto Stock Exchange. The average intraday price impact of repurchase trades is negative, since, because of execution rules, 60% are seller-initiated. Prices fall less following repurchase than matched non-repurchase trades - there is an abnormal price impact. We find evidence consistent with two hypotheses: repurchases provide price support, and the market learns that the shares are undervalued. Consistent with the latter, we find that repurchasing companies have superior timing. Share prices show abnormal losses (gains) before (after) the repurchase trades. We find no significant market reaction to the mandatory public disclosure of the trade details.
Number of Pages in PDF File: 30 Keywords: Repurchase Trades, Price Impact JEL Classification: G35 Accepted Paper SeriesDate posted: January 30, 2006Suggested CitationContact Information
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