Abstract
This study explores the pre-repurchase systematic risk will affect the abnormal returns in the open-market repurchase event period and also change the relationship between the investor sentiment, trading activity, market factors and stock price response during the event on Taiwan stock market. Based on threshold regression models, it is found that the pre-repurchase systematic risk will significantly change the relationship between investor behavior, market factors and stock price responses and the asymmetry of the relationship exists when pre-repurchase systematic risk is lower than a repartition, which supports that institutional investors and credit trading investors differ in these existing relationships. When the pre-repurchase beta is below repartition, it will be detrimental to the returns in event period. But on the contrary, the returns in the short-term shock of news exposure period present the favorable results, which may be related to the fact that there exists sentiment premium in short-term when credit trading investors’ repurchase news exposure occurs. Finally, the study is to confirm the effect of systematic risk for returns and investor sentiment, these results have not been further explored in the past, and can be used as the firm’s evalu-ation reference to the repurchase program in the future.
Highlights
The Open-Market Repurchases (OMR) program is one of the hot topics studies in the current capital market, especially the main purpose of the implementation is to protect the interests of shareholders
The systemic risk is commonly used to evaluate the risk of the stock price changes (Sheu & Cheng, 2012), and the paper apply the pre-repurchase systemic risk used on threshold regression model to explore the impact of the pre-repurchase systematic risk on the relationship between investor sentiment, trading activity, market factors and the stock price responses, that is, when the pre-repurchase systematic risk is lower than one specific value, it will change the existing relationship
If it is tested that there at least exists the situation of single threshold value, it means that when the pre-repurchase systematic risk is lower than one value, it will make the relationship between investor sentiment, trading activity, market factors and cumulative abnormal returns (CAR) of share repurchases produce structural change
Summary
The Open-Market Repurchases (OMR) program is one of the hot topics studies in the current capital market, especially the main purpose of the implementation is to protect the interests of shareholders. Aimed at the fact whether OMR has the positive effect on CAR of share repurchase in the event period, there are some differences in the previous research results and these results are in contradiction with the argument of signaling undervaluation (Su & Lin, 2012; Huang, Liano, Manakyan, & Pan, 2013; Cheng & Hou, 2013); at the same time, According to the results of this study, we can clarify the relationship between investor behaviors, market factors and the stock price responses on the market in the repurchase event period, and prove that the pre-repurchase systematic risk has influence on the stock price response in the share repurchase program.
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