The Price Impacts of Open Market Repurchase Trades |
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| Authors: | William J. McNally Brian F. Smith Thomas Barnes |
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| Affiliation: | The first and second authors are at the Clarica Financial Services Research Centre, School of Business and Economics, Wilfrid Laurier University. The third author is a Professor Emiritus at the Department of Accounting and Finance, Brock University. |
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| Abstract: | Abstract: This paper analyzes a database of 60,000+ individual repurchase trades from the Toronto Stock Exchange. The average intraday price impact of repurchase trades is negative, since, because of execution rules, 60% are seller-initiated. Prices fall less following repurchase than matched non-repurchase trades—there is an abnormal price impact. We find evidence consistent with two hypotheses: repurchases provide price support, and the market learns that the shares are undervalued. Consistent with the latter, we find that repurchasing companies have superior timing. Share prices show abnormal losses (gains) before (after) the repurchase trades. We find no significant market reaction to the mandatory public disclosure of the trade details. |
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| Keywords: | repurchase timing price impact |
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