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The Nature and Persistence of Buyback Anomalies

The Nature and Persistence of Buyback Anomalies Using recent data, we reject the hypothesis that the buyback anomalies first reported by Lakonishok and Vermaelen (1990, Journal of Finance 45:455–77) and Ikenberry, Lakonishok, and Vermaelen (1995, Journal of Financial Economics 39:181–208) have disappeared over time. We find evidence consistent with the hypothesis that open market repurchases are a response to a market overreaction to bad news: significant analyst downgrades, combined with overly pessimistic forecasts of long-term earnings. Stock prices after tender offers are set as if all investors tender their shares, but empirically they do not. Thus, the arbitrage opportunity persists because the market sets prices as if the average, not the marginal investor, determines the stock price. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Review of Financial Studies Oxford University Press

The Nature and Persistence of Buyback Anomalies

The Review of Financial Studies , Volume 22 (4) – Apr 27, 2009

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References (48)

Publisher
Oxford University Press
Copyright
© The Author 2008. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org
Subject
Article
ISSN
0893-9454
eISSN
1465-7368
DOI
10.1093/rfs/hhn024
Publisher site
See Article on Publisher Site

Abstract

Using recent data, we reject the hypothesis that the buyback anomalies first reported by Lakonishok and Vermaelen (1990, Journal of Finance 45:455–77) and Ikenberry, Lakonishok, and Vermaelen (1995, Journal of Financial Economics 39:181–208) have disappeared over time. We find evidence consistent with the hypothesis that open market repurchases are a response to a market overreaction to bad news: significant analyst downgrades, combined with overly pessimistic forecasts of long-term earnings. Stock prices after tender offers are set as if all investors tender their shares, but empirically they do not. Thus, the arbitrage opportunity persists because the market sets prices as if the average, not the marginal investor, determines the stock price.

Journal

The Review of Financial StudiesOxford University Press

Published: Apr 27, 2009

Keywords: JEL Classification G14 G35

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