The Price Impact of Open Market Share Repurchases

38 Pages Posted: 9 Mar 2011 Last revised: 3 Mar 2013

See all articles by Jonas Råsbrant

Jonas Råsbrant

Uppsala University - Department of Business Studies

Date Written: February 28, 2013

Abstract

This paper examines the stock performance around initiation announcements of open market share repurchase programs, the price impact of repurchase trading and the long-run abnormal stock performance following the initiation announcements in a European regulatory framework. The study uses a unique dataset on initiation announcements and actual repurchases conducted by firms listed on the Stockholm Stock Exchange during the period 2000-2009. The results show that initiation announcements of open market repurchase programs exhibit a two-day abnormal return of approximately 2%. The price impact on the actual repurchase days is positively correlated with the daily repurchase volume, and is both statistically and economically significant during the first 3 repurchase days in a repurchase program. The long-run abnormal stock performance is positively associated with the fraction of shares bought in the program and is approximately 7% the first year following the initiation announcement. The results indicate that repurchase trading provides price support and that the market participants detect and perceive the initiation announcement and the first repurchase days in a repurchase program as a signal of undervaluation.

Keywords: Share repurchases, Repurchase trading, Stock performance, Stockholm Stock Exchange, NASDAQ OMX Stockholm

JEL Classification: G14, G35

Suggested Citation

Råsbrant, Jonas, The Price Impact of Open Market Share Repurchases (February 28, 2013). Available at SSRN: https://ssrn.com/abstract=1780967 or http://dx.doi.org/10.2139/ssrn.1780967

Jonas Råsbrant (Contact Author)

Uppsala University - Department of Business Studies

Box 513
Uppsala, SE-751 20
Sweden

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