Individual Investors Repurchasing Behavior: Preference for Stocks Previously Owned

Abstract

We study the repurchasing behaviour of individual investors and identify related stock- and investor-specific attributes that affect the preference to repurchase stocks previously owned. Using a unique database of Portuguese individual investors, we find that investors prefer to repurchase stocks that were associated with a gain during their previous roundtrip (i.e., prior winners) and have suffered price declines subsequent to their last sale. Consistent with the extant literature based on the U.S. market, our results suggest that different market characteristics do not seem to affect investors’ preference regarding stock repurchases. Moreover, we find that this preference increases with the magnitude of the prior gain or the decline in price following the last sale. We also demonstrate that larger and more visible domestic stocks are more likely to be repurchased and that less active, under-diversified, and home-biased investors are more likely to engage in such behaviour. Finally, we find that repurchased stocks yield poor post performance – approximately 267 basis points less than newly purchased stocks. Our main conclusion is that repurchases are essentially emotionally driven and penalize investor’s performance.