Abstract
We find that, inconsistent with the low volatility anomaly, post-buyback announcement long-term abnormal returns are higher when the pre-announcement (idiosyncratic) volatility is high. This is consistent with Stambaugh, Yu, and Yuan (2015) who find a positive relation between returns and residual variance for undervalued stocks, and with Ikenberry and Vermaelen (1996) who argue that a repurchase authorization is an option to buy undervalued stocks. The buyback anomaly also survives when using the five-factor model of Fama and French (2015). Combining volatility with undervaluation indicators proposed by Peyer and Vermaelen (2009) improves the predictability of excess returns after buyback announcements.
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