- Do firms buy their stock at bargain prices? : Evidence from actual stock repurchase disclosure (2011)
- We use new data from SEC filings to investigate how S&P 500 firms execute their open market repurchase programs. We find that smaller S&P 500 firms repurchase less frequently than larger firms, and at a price which is significantly lower than the average market price. Their repurchase activity is followed by a positive and significant abnormal return which lasts up to three months after the repurchase. These findings do not hold for large S&P 500 firms. Our interpretation is that small firms repurchase strategically, whereas the repurchase activity of large firms is more focused on the disbursement of free cash. JEL Classification: G14, G30, G35 Keywords: Stock Repurchases, Stock Buybacks, Payout Policy, Timing, Bid-Ask Spread, Liquidity
- The diminishing liquidity premium (2008)
- Previous evidence suggests that less liquid stocks entail higher average returns. Using NYSE data, we present evidence that both the sensitivity of returns to liquidity and liquidity premia have significantly declined over the past four decades to levels that we cannot statistically distinguish from zero. Furthermore, the profitability of trading strategies based on buying illiquid stocks and selling illiquid stocks has declined over the past four decades, rendering such strategies virtually unprofitable. Our results are robust to several conventional liquidity measures related to volume. When using liquidity measure that is not related to volume, we find just weak evidence of a liquidity premium even in the early periods of our sample. The gradual introduction and proliferation of index funds and exchange traded funds is a possible explanation for these results.