Share Repurchases and Market Efficiency–Dang!

/Share Repurchases and Market Efficiency–Dang!

Share Repurchases and Market Efficiency–Dang!

By | 2017-08-18T16:57:05+00:00 October 1st, 2012|Research Insights|0 Comments
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(Last Updated On: August 18, 2017)

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.


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

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About the Author:

After serving as a Captain in the United States Marine Corps, Dr. Gray earned a PhD, 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 that delivers affordable active exposures for tax-sensitive investors. Dr. Gray has published four books and a number of academic articles. Wes is a regular contributor to multiple industry outlets, to include the following: Wall Street Journal, Forbes,, and the CFA Institute. Dr. Gray earned an MBA and a PhD in finance from the University of Chicago and graduated magna cum laude with a BS from The Wharton School of the University of Pennsylvania.