Overconfidence and the Timing of Share Repurchases

Abstract

This paper investigates the efficiency of open market repurchases across managerial confidence types and finds that moderately confident managers repurchase shares at relatively lower prices than overconfident managers and do so at prices that are closer to the quarterly low stock price. Additionally, it analyzes bid-ask spreads to investigate whether or not the market perceives repurchases to be wellformed and signaling undervaluation. The results suggest that repurchases by moderately confident managers are informed attempts to time the market, while repurchases by overconfident managers are either ill-informed or made for other reasons.