Sensitivity to investor sentiment and stock performance of open market share repurchases |
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Institution: | 1. Price College of Business, University of Oklahoma, USA;2. Center for Financial Research, University of Cologne, Germany;1. Department of Banking and Finance, Tamkang University, New Taipei City, Taiwan;2. Institute of Finance, National Chiao Tung University, Hsinchu, Taiwan |
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Abstract: | This paper finds that stocks of repurchasers with high sensitivity to investor sentiment are more likely to be mispriced. Thus, such repurchases are followed by superior post-buyback stock performance. This abnormal return associated with sensitivity to sentiment cannot be explained by other undervaluation factors: book-to-market or prior return effects. My results are robust with factor model analysis and controls for contamination effects. I conclude that this sentiment-driven undervaluation may result from the difficulty to value and/or limits to arbitrage rather than investor overreaction. |
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Keywords: | Repurchases Investor sentiment Undervaluation Mispricing |
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