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Volatility and the buyback anomaly

Author

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  • Evgeniou, Theodoros
  • de Fortuny, Enric Junqué
  • Nassuphis, Nick
  • Vermaelen, Theo

Abstract

The buyback anomaly survives when using the five factor Fama and French (2015) and the four factor Stambaugh and Yuan (2017) models: buyback announcements are followed by positive long-term excess returns that are positively related to (idiosyncratic) volatility, inconsistent with the low volatility anomaly. The results are consistent with the costly arbitrage hypothesis (Stambaugh et al., 2015) as well as with the market timing hypothesis: the option to take advantage of undervalued stock is more valuable when firm value is more uncertain or is more driven by company-specific information. Combining volatility with undervaluation indicators proposed by Peyer and Vermaelen (2009) improves the predictability of excess returns after buyback announcements.

Suggested Citation

  • Evgeniou, Theodoros & de Fortuny, Enric Junqué & Nassuphis, Nick & Vermaelen, Theo, 2018. "Volatility and the buyback anomaly," Journal of Corporate Finance, Elsevier, vol. 49(C), pages 32-53.
    • Handle: RePEc:eee:corfin:v:49:y:2018:i:c:p:32-53
    DOI: 10.1016/j.jcorpfin.2017.12.017
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    References listed on IDEAS

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    2. Tsai, Pei-Ling & Hsu, Yuan-Lin & Chih, Hsiang-Hsuan & Lin, Shih-Kuei, 2022. "Theoretical and empirical analysis of options in open market share repurchases of Taiwan companies," International Review of Economics & Finance, Elsevier, vol. 81(C), pages 205-226.
    3. Dayanandan, Ajit & Donker, Han & Kuntluru, Sudershan & Nofsinger, John, 2020. "Share buybacks in India," Research in International Business and Finance, Elsevier, vol. 54(C).
    4. Kolari, James W. & Pynnonen, Seppo & Tuncez, Ahmet M., 2021. "Further evidence on long-run abnormal returns after corporate events," The Quarterly Review of Economics and Finance, Elsevier, vol. 81(C), pages 421-439.
    5. Palani-Rajan Kadapakkam & Hongxian Zhang & Sinan Yildirim, 2021. "A reexamination of the tendering profit anomaly," Review of Quantitative Finance and Accounting, Springer, vol. 56(4), pages 1475-1501, May.

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