When is Market the Benchmark? Reinforcement Evidence from Repurchase Decisions
Heinrich H. Nax
Authors registered in the RePEc Author Service: Peiran Jiao
No 781, Economics Series Working Papers from University of Oxford, Department of Economics
Abstract:
Abstract: Reinforcement relative to an adaptive benchmark is a well-established model of behavior outside finance. Recently, reinforcement has been identified as an important driver of decisions to repurchase a stock. In this paper, we enrich the existing reinforcement model of repurchasing by an aspiration-based market benchmark. When choosing which stock to repurchase, investors’ sources of reinforcement are weighted averages of absolute returns from previous sales and relative returns with respect to a market benchmark. The weights change according to market environments. We empirically identify the following crucial asymmetry that cannot be reconciled by simple reinforcement strategy, but is consistent with the model we propose: investors place more weight on relative returns when the market is performing well, and place more weight on absolute returns when the market is performing badly.
Keywords: Reinforcement; Stock Repurchasing; Aspiration Adjustment (search for similar items in EconPapers)
JEL-codes: D01 G02 G11 (search for similar items in EconPapers)
Date: 2016-02-12
References: Add references at CitEc
Citations:
Downloads: (external link)
https://ora.ox.ac.uk/objects/uuid:b257d777-337d-47bb-a6d7-f7248b97f026 (text/html)
Related works:
Working Paper: When is Market the Benchmark? Reinforcement Evidence from Repurchase Decisions (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:oxf:wpaper:781
Access Statistics for this paper
More papers in Economics Series Working Papers from University of Oxford, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Anne Pouliquen (facultyadmin@economics.ox.ac.uk this e-mail address is bad, please contact repec@repec.org).