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Sensitivity to investor sentiment and stock performance of open market share repurchases

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  • Liang, Woan-lih
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.

Suggested Citation

  • Liang, Woan-lih, 2016. "Sensitivity to investor sentiment and stock performance of open market share repurchases," Journal of Banking & Finance, Elsevier, vol. 71(C), pages 75-94.
    • Handle: RePEc:eee:jbfina:v:71:y:2016:i:c:p:75-94
    DOI: 10.1016/j.jbankfin.2016.06.003
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    More about this item

    Keywords

    Repurchases; Investor sentiment; Undervaluation; Mispricing;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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