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Investor Inattention and Under-Reaction to Repurchase Announcements

Author

Listed:
  • Lee-Young Cheng
  • Zhipeng Yan
  • Yan Zhao
  • Li-Ming Gao

Abstract

This paper investigates investor inattention as a plausible explanation for market reaction to repurchase announcements. We use prior turnover as the proxy for investor attention to examine the difference in stock price performance between low-attention stocks and high-attention stocks. We find that low prior turnover firms experience greater underreaction to repurchase announcements than high prior turnover firms. Low prior turnover firms also experience larger positive long-run excess returns following announcements. Furthermore, a higher level of investor's inattention leads to higher degree of underreactions, resulting in higher actual completion rates.JEL Classifications: G14, G15

Suggested Citation

  • Lee-Young Cheng & Zhipeng Yan & Yan Zhao & Li-Ming Gao, 2015. "Investor Inattention and Under-Reaction to Repurchase Announcements," Journal of Behavioral Finance, Taylor & Francis Journals, vol. 16(3), pages 267-277, July.
    • Handle: RePEc:taf:hbhfxx:v:16:y:2015:i:3:p:267-277
    DOI: 10.1080/15427560.2015.1065264
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    Cited by:

    1. Irfan Ahmed & Claudio Socci & Francesca Severini & Qaiser Rafique Yasser & Rosita Pretaroli, 2018. "Forecasting investment and consumption behavior of economic agents through dynamic computable general equilibrium model," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 4(1), pages 1-21, December.
    2. Neenu C & T Mohamed Nishad, 2022. "Behavior of Financial Markets Around News Announcements: A Review Based on Bibliometric Analysis of Scientific Fields," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 14(2), pages 143-172, December.

    More about this item

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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