Investor Inattention and Under-Reaction to Repurchase Announcements

Lee-Young Cheng, Zhipeng Yan, Yan Zhao and Li-Ming Gao

Journal of Behavioral Finance, 2015, vol. 16, issue 3, 267-277

Abstract: This paper investigates investor inattention as a plausible explanation for market reaction to repurchase announcements. We use prior turnover as the proxy for investor attention to examine the difference in stock price performance between low-attention stocks and high-attention stocks. We find that low prior turnover firms experience greater underreaction to repurchase announcements than high prior turnover firms. Low prior turnover firms also experience larger positive long-run excess returns following announcements. Furthermore, a higher level of investor's inattention leads to higher degree of underreactions, resulting in higher actual completion rates.JEL Classifications: G14, G15

Date: 2015
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DOI: 10.1080/15427560.2015.1065264

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