Institutional Trading around Repurchase Announcements: An Uphill Battle

48 Pages Posted: 25 Mar 2020

See all articles by Vinh Huy Nguyen

Vinh Huy Nguyen

California State University, Fresno - Department of Finance and Business Law

Suchi Mishra

Florida International University (FIU) - Department of Finance

Pankaj K. Jain

University of Memphis - Fogelman College of Business and Economics

Date Written: February 8, 2020

Abstract

Share repurchase announcements create an asymmetric information environment for institutional investors. The firm and its insiders know the announcement’s timing and enjoy regulatory exemptions from securities law violations for the timing and pricing of share repurchase implementation or lack thereof. Institutions do not have this information ex-ante, unlike insiders. We find that institutions, with the exception of mutual funds, are not profitable in aggregate around the announcement of firms that do not follow through with actual repurchases. Contrastingly, institutions are profitable when firms actually repurchase shares. The difference between the two groups appears to be the varying degrees of mispricing. Firms with a larger degree of mispricing have less information production and create a difficult trading environment for institutions.

Keywords: 13F, repurchase announcement, institutional investor, insiders, mispricing

JEL Classification: D82, G14, G20, G35

Suggested Citation

Nguyen, Vinh Huy and Mishra, Suchismita and Jain, Pankaj K., Institutional Trading around Repurchase Announcements: An Uphill Battle (February 8, 2020). Available at SSRN: https://ssrn.com/abstract=3546249 or http://dx.doi.org/10.2139/ssrn.3546249

Vinh Huy Nguyen (Contact Author)

California State University, Fresno - Department of Finance and Business Law ( email )

United States

Suchismita Mishra

Florida International University (FIU) - Department of Finance ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

Pankaj K. Jain

University of Memphis - Fogelman College of Business and Economics ( email )

Memphis, TN 38152
United States

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