The Liquidity Impact of Open Market Share Repurchases

28 Pages Posted: 6 Aug 2008 Last revised: 3 Mar 2013

See all articles by Jonas Råsbrant

Jonas Råsbrant

Uppsala University - Department of Business Studies

Adri De Ridder

University of Gothenburg - School of Business, Economics and Law

Date Written: February 25, 2013

Abstract

We examine the market liquidity impact of open market share repurchases in a computerized order driven market. Using a detailed dataset of daily repurchase transactions on the Stockholm Stock Exchange together with intraday data on bid-ask spreads and order depths enable us to examine liquidity effects on the actual repurchase days. Overall, we find that repurchase trades inside the order driven trading system contributes to market liquidity through narrower bid-ask spreads and deeper market depths. After controlling for total trading volume, price, and volatility we still find a significant decrease of the bid-ask spread on repurchase days relative to surrounding non-repurchase days. However, repurchases executed as block trades outside the order driven trading system have a detrimental effect on the bid-ask spread, consistent with a negative response to the presence of informed managerial trading.

Keywords: Share repurchases, Liquidity, Repurchase trading, Payout policy, Stockholm Stock Exchange, NASDAQ OMX Stockholm

JEL Classification: G14, G35

Suggested Citation

Råsbrant, Jonas and De Ridder, Adri, The Liquidity Impact of Open Market Share Repurchases (February 25, 2013). Available at SSRN: https://ssrn.com/abstract=493044 or http://dx.doi.org/10.2139/ssrn.493044

Jonas Råsbrant (Contact Author)

Uppsala University - Department of Business Studies

Box 513
Uppsala, SE-751 20
Sweden

Adri De Ridder

University of Gothenburg - School of Business, Economics and Law ( email )

SE- 405 30 Goteborg
Sweden
+46 8 7884337 (Phone)