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:
AccrualsMomentumValueManaged 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
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