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Overshooting: Evidence from share repurchases and subsidiary selling

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  • Wang, C. Edward
  • DeGennaro, Ramon P.
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.

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  • Wang, C. Edward & DeGennaro, Ramon P., 2019. "Overshooting: Evidence from share repurchases and subsidiary selling," Research in International Business and Finance, Elsevier, vol. 49(C), pages 41-54.
    • Handle: RePEc:eee:riibaf:v:49:y:2019:i:c:p:41-54
    DOI: 10.1016/j.ribaf.2019.02.006
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    1. Shao-Chi Chang & Jung-Ho Lai & Chen-Hsiang Yu, 2005. "The Intra-Industry Effect of Share Repurchase Deregulation: Evidence from Taiwan," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 8(02), pages 251-277.
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    Cited by:

    1. Dayanandan, Ajit & Donker, Han & Kuntluru, Sudershan & Nofsinger, John, 2020. "Share buybacks in India," Research in International Business and Finance, Elsevier, vol. 54(C).
    2. Wang, Ling, 2020. "Unconventional monetary policy and stock repurchases: Firm-level evidence from a comparison between the United States and Japan," Research in International Business and Finance, Elsevier, vol. 51(C).

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