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Buyback trading of open market share repurchase firms and the return volatility decline

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  • Jaemin Kim

Abstract

Purpose - The paper seeks to examine changes in daily return volatility associated with open market share repurchases. Design/methodology/approach - Univariate analyses, control sample analyses, and multiple regression analyses are employed to explore relations between daily return volatility and a number of variables. Findings - This study finds evidence that an open market share repurchase firm, by actively buying back its shares when the share price falls, reduces daily return volatility. The results suggest that it is the subsequent actual buyback trading activity, not the announcement, that is significantly negatively associated with changes in daily return volatility. CAPM beta, a measure of systematic risk, decreases only when the firm is in the market actively repurchasing its shares. Originality/value - To the best of the author's knowledge, this study is probably the first to connect changes in daily return volatility to actual buyback trading activities of share repurchase announcing firms. Changes in daily return volatility, or total risk, not only affect systematic risk, but also are important to underlying option holders, arbitrageurs, and investors who hold undiversified portfolios.

Suggested Citation

  • Jaemin Kim, 2007. "Buyback trading of open market share repurchase firms and the return volatility decline," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 3(4), pages 316-337, October.
    • Handle: RePEc:eme:ijmfpp:v:3:y:2007:i:4:p:316-337
    DOI: 10.1108/17439130710824343
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    References listed on IDEAS

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    1. Scott Weisbenner, 2000. "Corporate share repurchases in the 1990s: what role do stock options play?," Finance and Economics Discussion Series 2000-29, Board of Governors of the Federal Reserve System (U.S.).
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    Citations

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    Cited by:

    1. Sudershan Kuntluru & Kevin Thomas Chacko, 2019. "Share Buybacks in India: An Empirical Analysis," Working papers 333, Indian Institute of Management Kozhikode.
    2. Reddy, Kotapati Srinivasa & Nangia, Vinay Kumar & Agrawal, Rajat, 2013. "Share repurchases, signaling effect and implications for corporate governance: Evidence from India," MPRA Paper 60147, University Library of Munich, Germany.
    3. Sudershan Kuntluru, 2019. "Share Buybacks in India: An Empirical Analysis," Working papers 318, Indian Institute of Management Kozhikode.
    4. Ihsan Badshah & Hardjo Koerniadi & James Kolari, 2019. "Testing the Information-Based Trading Hypothesis in the Option Market: Evidence from Share Repurchases," JRFM, MDPI, vol. 12(4), pages 1-11, November.

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