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Is the Market Underreacting or Overreacting to Open Market Share Repurchases? A UK Perspective

Posted: 28 Mar 2011  

Ian Peter Crawford

School of Management, University of Bath

Zhiqi Wang

Birkbeck, University of London

Date Written: May 15, 2010

Abstract

Using UK open market repurchases, we reject the market underreaction hypothesis and the market overreaction hypothesis proposed by (Ikenberry, Lakonishok and Vermaelen 1995) and (Peyer and Vermaelen 2009), respectively. The evidence supports that the UK market reacts slowly to actual repurchases made by value firms. UK repurchases on average do not suffer from share undervaluation prior to the announcement. Value firms perform just as well as glamour firms during the authorisation period but outperform glamour firms significantly two years following the announcement. It turns out that value firms repurchase over 6% more shares than glamour firms during the authorisation period.

Keywords: Open Market Share Repurchases, Market Underreaction or Overreaction, Long Run Abnormal Returns

JEL Classification: G14, G35

Suggested Citation

Crawford, Ian Peter and Wang, Zhiqi, Is the Market Underreacting or Overreacting to Open Market Share Repurchases? A UK Perspective (May 15, 2010). Available at SSRN: https://ssrn.com/abstract=1608402

Ian Peter Crawford

School of Management, University of Bath ( email )

University of Bath
Bath
Bath, BA2 7AY
United Kingdom

Zhiqi Wang (Contact Author)

Birkbeck, University of London ( email )

Malet Street
Bloomsbury
London, WC1E 7HX
United Kingdom

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