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

Woan-lih Liang*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

7 Scopus citations

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.

Original languageEnglish
Pages (from-to)75-94
Number of pages20
JournalJournal of Banking and Finance
Volume71
DOIs
StatePublished - 1 Oct 2016

Keywords

  • Investor sentiment
  • Mispricing
  • Repurchases
  • Undervaluation

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