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Idiosyncratic risk and share repurchases

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  • Hsu, Yuan-Teng
  • Huang, Chia-Wei

Abstract

The ‘open market share repurchase anomaly’ occurs when stocks of repurchasing firms subsequently outperform non-repurchasing firms matched on several firm characteristics. We document that the post-repurchase outperformance reflects higher idiosyncratic risk exposure for repurchasing firms than matching firms. A possible explanation is that, as firms’ leverage increases due to share repurchases, their exposure to idiosyncratic risk rises, thus increasing their stocks’ expected returns relative to matched firms.

Suggested Citation

  • Hsu, Yuan-Teng & Huang, Chia-Wei, 2016. "Idiosyncratic risk and share repurchases," Finance Research Letters, Elsevier, vol. 18(C), pages 76-82.
    • Handle: RePEc:eee:finlet:v:18:y:2016:i:c:p:76-82
    DOI: 10.1016/j.frl.2016.04.003
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    More about this item

    Keywords

    Long-run abnormal return; Share repurchases; Idiosyncratic risk;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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