Overshooting: Evidence from share repurchases and subsidiary selling

C. Edward Wang and Ramon Degennaro

Research in International Business and Finance, 2019, vol. 49, issue C, 41-54

Abstract: If a firm repurchases its own shares to signal that they are undervalued, then the stock price should increase to its intrinsic level. However, the path that the price takes to reach its intrinsic value is not obvious. In particular, the price could overshoot before settling at the equilibrium value. Institutional details of the Taiwanese stock market make Taiwanese data well-suited to study this. We find strong evidence that a price rebound does tend to overshoot for firms that later sell some of the shares repurchased during the original repurchase. Our study supports the view of Daniel, Hirshleifer, and Subrahmanyam (1998) that intermediate-term price drift is caused by investor overconfidence, which then results in market overreaction.

Keywords: Open-market repurchases; Market underreaction; Market overreaction (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0275531918305968
Full text for ScienceDirect subscribers only

Related works:
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:eee:riibaf:v:49:y:2019:i:c:p:41-54

DOI: 10.1016/j.ribaf.2019.02.006

Access Statistics for this article

Research in International Business and Finance is currently edited by T. Lagoarde Segot

More articles in Research in International Business and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().