Overconfidence and the Timing of Share Repurchases

Abstract

We investigate the efficiency of open market repurchases across managerial confidence types. We find that moderately confident managers repurchase at relatively lower prices than overconfident managers and at prices that are closer to the quarterly low stock price. Additionally, we analyze bid-ask spreads and show that spreads are relatively lower in quarters when overconfident managers are repurchasing shares. Our results suggest that repurchases by moderately confident managers are informed attempts to time the market, while repurchases by overconfident managers are either ill-informed or made for other reasons.

Keywords: Behavioral Finance, Corporate Finance, Buybacks, Repurchases, Overconfidence, Timing