Volatility and the Buyback Anomaly
50 Pages Posted: 27 Mar 2016 Last revised: 15 Feb 2017
Date Written: February 15, 2017
The buyback anomaly survives when using the five factor Fama and French (2015) and the four factor Stambaugh and Yuan (2016) models: buyback announcements are followed by positive long-term excess returns that are positively related to (idiosyncratic) volatility, inconsistent with the low volatility anomaly. The results are consistent with the market timing hypothesis: the option to take advantage of undervalued stock is more valuable when firm value is more uncertain or is more driven by company-specific information. Combining volatility with undervaluation indicators proposed by Peyer and Vermaelen (2009) improves the predictability of excess returns after buyback announcements.
Keywords: Share Buybacks, Seasoned Equity Offerings, Anomalies
JEL Classification: G35, G14, G32
Suggested Citation: Suggested Citation