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Market Timing in Open Market Bond Repurchases

Author

Listed:
  • Nadav Steinberg

    (Bank of Israel)

  • Avi Wohl

    (Tel-Aviv University)

Abstract

Bond repurchases are widespread in the US and other markets but data limitations have thus far prevented market-timing analysis. We fill this gap using unique daily data from Israel and show that firms time the market in their actual open-market bond repurchases. Firms repurchase their bonds following a decline in bond prices. The disclosure of bond repurchases results in significantly positive abnormal returns on the repurchased bonds and is followed by a positive drift in subsequent 5 trading days. The market reaction to actual bond repurchases is timelier when conducted within a preannounced repurchase program, and the impact is stronger when the firm repurchases high-yield bonds. Insiders’ net purchases increase prior to bond repurchases, and the abnormal return following a bond repurchase tends to be higher when it is preceded by positive net insider purchases. The results lend support to the information motive for bond repurchases.

Suggested Citation

  • Nadav Steinberg & Avi Wohl, 2022. "Market Timing in Open Market Bond Repurchases," Bank of Israel Working Papers 2022.15, Bank of Israel.
    • Handle: RePEc:boi:wpaper:2022.15
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    Keywords

    Fixed income securities; Capital structure; Financial policy; Payout policy; Event studies; Information and disclosure;
    All these keywords.

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