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Seeking Alpha from Share Repurchases

Atreya Chakraborty, James L. Grant, Emery A. Trahan and Bhakti Varma
The Journal of Investing December 2019, 29 (1) 61-79; DOI: https://doi.org/10.3905/joi.2019.1.104
Atreya Chakraborty
is a professor of finance in the College of Management at the University of Massachusetts Boston in Boston, MA
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James L. Grant
is a senior associate dean and associate professor of finance in the College of Management at the University of Massachusetts Boston in Boston, MA
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Emery A. Trahan
is senior associate dean of faculty and research and a professor of finance in the D’Amore McKim School of Business at Northeastern University in Boston, MA
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Bhakti Varma
is a research affiliate at Northeastern University in Boston, MA
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Abstract

We assess the announcement wealth effects and trading opportunities on the stocks of share repurchasing firms. We join the traditional CAR approach to estimating abnormal returns with the EVA style approach to investing. Our empirical results are robust and statistically significant for a sample of 1,540 share repurchases observed over the 18-year reporting period, 1997–2014. Our CAR and EVA style findings confirm both information signaling and the potential availability of alpha-generating trading opportunities on the stocks of share repurchasing firms. Our empirical insights are observed in the overall sample and across the EVA styles. The information signaling content of share repurchases is also observed for sub-periods before, during, and following the Global Financial Crisis. For active investors, we conclude that alpha returns may be available for investors by going long the stocks of share repurchasing firms at the time of the announcement and holding the position open for some 30 trading days thereafter (with caveats concerning the length of our default event trading window). A notable finding linked to EVA style is that alpha-generating returns were consistently available on the stocks of “wise” or cyclical restructuring firms.

TOPICS: Analysis of individual factors/risk premia, factor-based models, style investing

Key Findings

  • • Our CAR and EVA-joined style findings on share repurchasing firms confirm both information signaling at time of announcement and the potential for alpha-generating trading returns thereafter.

  • • For active investors, alpha-generating trading opportunities may be available by longing the stocks of share repurchasing firms at announcement and holding the position open for several days thereafter.

  • • Based on EVA style classifications of value creators and value destroyers, we find that alpha-generating trading returns from share repurchases were consistently available on the stocks of “wise” or cyclical restructuring firms.

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The Journal of Investing: 29 (1)
The Journal of Investing
Vol. 29, Issue 1
December 2019
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Seeking Alpha from Share Repurchases
Atreya Chakraborty, James L. Grant, Emery A. Trahan, Bhakti Varma
The Journal of Investing Nov 2019, 29 (1) 61-79; DOI: 10.3905/joi.2019.1.104

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Seeking Alpha from Share Repurchases
Atreya Chakraborty, James L. Grant, Emery A. Trahan, Bhakti Varma
The Journal of Investing Nov 2019, 29 (1) 61-79; DOI: 10.3905/joi.2019.1.104
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  • Article
    • Abstract
    • LITERATURE REVIEW ON SHARE REPURCHASES
    • DATA AND RESEARCH METHODOLOGY
    • CAR ANALYSIS
    • EVA STYLE ANALYSIS
    • EVA STYLE AND SHARE REPURCHASES
    • EMPIRICAL FINDINGS
    • CAR RESULTS: 1997–2014
    • DISTRIBUTION OF SHARE REPURCHASES BY EVA STYLE
    • REPURCHASING FIRMS’ CARS BY EVA STYLE (1997–2014): DAYS −60, −1
    • REPURCHASING FIRMS’ CARS BY EVA STYLE (1997–2014): DAYS −1, 1
    • REPURCHASING FIRMS’ CARS BY EVA STYLE (1997–2014): DAYS 1, 30
    • REPURCHASING FIRMS’ CARS AND THE GLOBAL FINANCIAL CRISIS
    • REPURCHASING FIRMS’ CARS: PRE-, DURING, AND POST-FINANCIAL CRISIS
    • REPURCHASING FIRMS’ CARS BY EVA STYLE: PRE-CRISIS
    • REPURCHASING FIRMS’ CARS BY EVA STYLE: DURING CRISIS
    • REPURCHASING FIRMS’ CARS BY EVA STYLE: POST-CRISIS
    • CAR RESULTS FROM REPEAT SHARE REPURCHASES
    • EVA STYLES AND INVESTMENT SPENDING
    • SUMMARY AND CONCLUSION
    • ACKNOWLEDGMENTS
    • ADDITIONAL READING
    • ENDNOTES
    • REFERENCES
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