The Optimal Timing of Open Market Stock Repurchases |
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Authors: | Chih-Chen Hsu Andreas Krause |
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Institution: | 1. Innovation Center for Intelligent Transportation and Logistics, Taichung, Taiwan, R.O.C.;2. Department of Economics, University of Bath, Bath, Great Britain |
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Abstract: | Using a continuous-time real options approach we determine the conditions under which a value-maximizing company would conduct an open market stock repurchase to exploit the undervaluation of shares. We find the optimal timing of such repurchases as well as the optimal amount a company should repurchase and analyze how it depends on market parameters. Obtaining the announcement returns from the authorization of stock repurchases from our model allows us to derive testable empirical implications. |
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Keywords: | announcement returns optimal repurchase amount optimal timing real option stock repurchases |
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