Market Underreaction to Open Market Share Repurchases

Rice University Working Paper Series No 106

Posted: 6 Sep 1999

See all articles by David L. Ikenberry

David L. Ikenberry

Leeds School of Business, University of Colorado Boulder; University of Illinois at Urbana-Champaign - Department of Finance

Josef Lakonishok

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

Theo Vermaelen

INSEAD - Finance

Multiple version iconThere are 2 versions of this paper

Date Written: July 1994

Abstract

We examine the long-run performance of 1,239 open market share repurchases announced during the period 1980 to 1990. We find that the average excess four-year buy-and-hold return measured after the initial announcement is 12.6 percent. For "value" stocks, companies that are more likely to be making repurchases because of undervaluation, the average excess return is 45 percent. Thus undervaluation appears to be an important motive for repurchasing shares. Furthermore, the market systematically errs in its initial response and ignores much of the signal conveyed through repurchases.

JEL Classification: G3, G31

Suggested Citation

Ikenberry, David L. and Lakonishok, Josef and Vermaelen, Theo, Market Underreaction to Open Market Share Repurchases (July 1994 ). Rice University Working Paper Series No 106. Available at SSRN: https://ssrn.com/abstract=5507

David L. Ikenberry (Contact Author)

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

Boulder, CO 80309-0419
United States
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University of Illinois at Urbana-Champaign - Department of Finance ( email )

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Josef Lakonishok

University of Illinois at Urbana-Champaign ( email )

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Champaign, IL 61820
United States
217-333-7185 (Phone)
217-244-3102 (Fax)

National Bureau of Economic Research (NBER)

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Theo Vermaelen

INSEAD - Finance ( email )

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France
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33 1 60 72 40 45 (Fax)

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