The Price Impacts of Open Market Repurchase Trades
William J. McNally
Wilfrid Laurier University - School of Business & Economics
Brian F. Smith
Wilfrid Laurier University
Brock University - Department of Economics
Journal of Business Finance & Accounting, Forthcoming
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: G35Accepted Paper Series
Date posted: January 30, 2006
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