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Do Better Informed Investors Always Do Better? A Buyback Puzzle

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We explore the value of private investment information using data from a singular source: auctions of yearling racehorses. Horse breeders possess superior information about their own horses and have strong financial incentives to buy the best of these back at auction. However, those they repurchase subsequently perform significantly worse on average, earning 30% less at the racetrack than horses purchased by out-siders. Moreover, this underperformance is concentrated in male horses, despite these being purchased exclusively for racing purposes. These puzzling findings can-not be explained by differences in horse risk or breeder abilities, or by non-financial objectives, or by behavioral or selection biases.

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  • Glenn Boyle & Gerald Ward, 2018. "Do Better Informed Investors Always Do Better? A Buyback Puzzle," Working Papers in Economics 18/06, University of Canterbury, Department of Economics and Finance.
    • Handle: RePEc:cbt:econwp:18/06
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    More about this item

    Keywords

    Auctions; racehorses; buybacks;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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