Market Underreaction to Open Market Share Repurchases

33 Pages Posted: 25 Jul 2000 Last revised: 28 Jul 2022

See all articles by David L. Ikenberry

David L. Ikenberry

Leeds School of Business, University of Colorado Boulder

Josef Lakonishok

University of Illinois at Urbana-Champaign; National Bureau of Economic Research (NBER)

Theo Vermaelen

INSEAD - Finance; European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: December 1994

Abstract

We examine long-run firm performance following open market share repurchase announcements which occurred during the period 1980 to 1990. We find that the average abnormal four-year buy-and-hold return measured after the initial announcement is 12.1 percent. For `value' stocks, companies more likely to be repurchasing shares because of undervaluation, the average abnormal return is 45.3 percent. For repurchases announced by `glamour' stocks where undervaluation is less likely to be an important motive, no positive drift in abnormal returns is observed. Thus, at least with respect to value stocks, the market errs in its initial response and appears to ignore much of the information conveyed through repurchase announcements.

Suggested Citation

Ikenberry, David L. and Lakonishok, Josef and Vermaelen, Theo, Market Underreaction to Open Market Share Repurchases (December 1994). NBER Working Paper No. w4965, Available at SSRN: https://ssrn.com/abstract=226564

David L. Ikenberry (Contact Author)

Leeds School of Business, University of Colorado Boulder ( email )

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Josef Lakonishok

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