The Timing of Stock Repurchases

49 Pages Posted: 25 Jun 2006

See all articles by Amy K. Dittmar

Amy K. Dittmar

University of Michigan at Ann Arbor - The Stephen M. Ross School of Business

Robert F. Dittmar

Rice University

Date Written: January 2007


Recent evidence indicates that cycles in valuation and managers ability to time the market partly explain the pattern of many corporate financing activities, such as equity issuances and mergers. In this paper, we challenge the importance of market timing in driving financing waves by examining the aggregate pattern of stock repurchases. We focus on repurchases because, though repurchases involve the opposite transaction, the pattern of repurchases mirrors that of equity issuances and mergers. We show that stock repurchase waves are not driven by potential misvaluations. Specifically, we show that market and relative returns, equity share in new issuances, the number of IPOs in a given year, the closed end fund discount, and relative market to book ratios do not explain the time-series of aggregate repurchases. To understand this result, we evaluate each of these measures of market timing relative to the pricing error from a present value model of cash flows and discount rates and show that the pricing error behaves more like a measure of misvaluation than the market timing measures. However, it too does not explain aggregate repurchase activity. Rather, we show that variations in repurchase activity are driven by changes in business cycles.

Keywords: Repurchase, market timing, distribution policy

JEL Classification: G14, G32, G35, G24

Suggested Citation

Dittmar, Amy and Dittmar, Robert F., The Timing of Stock Repurchases (January 2007). Available at SSRN: or

Amy Dittmar (Contact Author)

University of Michigan at Ann Arbor - The Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-764-3108 (Phone)


Robert F. Dittmar

Rice University ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

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