By |Published On: October 1st, 2012|Categories: Research Insights|

The Persistence of Long-Run Abnormal Stock Returns:
Evidence from Stock Repurchases and Offerings

  • Fangjian Fu, Sheng Huang, and Hu Lin
  • A version of the paper can be found here.

Abstract:

Prior studies have shown that stock returns are abnormally high in the years following share repurchases and abnormally low following seasoned equity offerings, relative to various benchmarks of expected returns. While this evidence is confirmed for these two corporate events as of 2002, we do not find robust long-run abnormal returns for either event announced after 2002. The disappearance of abnormal performance is consistent with the improved stock market efficiency of recent years, accompanied by reduced trading costs and increased institutional investment activities, as documented by a number of recent studies. Echoing the improved market efficiency, fewer firms in recent years conduct stock repurchases or seasoned equity offerings for the purpose of timing the market.

Summary Comment:

Knowing what doesn’t work is often more valuable than knowing what DOES work. Looks like one of the quant/value favorites–share repurchases and season equity offerings–hasn’t worked in 10 years.

Add to the list of recent bad ideas:

  • Accruals
  • Momentum
  • Value
  • Managed Futures

The irony after the 2008 debacle is that the one systematic strategy that is working is an age-old favorite:

  • Buy-and-Hold

About the Author: Wesley Gray, PhD

Wesley Gray, PhD
After serving as a Captain in the United States Marine Corps, Dr. Gray earned an MBA and a PhD in finance from the University of Chicago where he studied under Nobel Prize Winner Eugene Fama. Next, Wes took an academic job in his wife’s hometown of Philadelphia and worked as a finance professor at Drexel University. Dr. Gray’s interest in bridging the research gap between academia and industry led him to found Alpha Architect, an asset management firm dedicated to an impact mission of empowering investors through education. He is a contributor to multiple industry publications and regularly speaks to professional investor groups across the country. Wes has published multiple academic papers and four books, including Embedded (Naval Institute Press, 2009), Quantitative Value (Wiley, 2012), DIY Financial Advisor (Wiley, 2015), and Quantitative Momentum (Wiley, 2016). Dr. Gray currently resides in Palmas Del Mar Puerto Rico with his wife and three children. He recently finished the Leadville 100 ultramarathon race and promises to make better life decisions in the future.

Important Disclosures

For informational and educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. Certain information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Third party information may become outdated or otherwise superseded without notice.  Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency has approved, determined the accuracy, or confirmed the adequacy of this article.

The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Alpha Architect, its affiliates or its employees. Our full disclosures are available here. Definitions of common statistics used in our analysis are available here (towards the bottom).

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