Investor Inattention and Under-Reaction to Repurchase Announcements

This paper investigates investor inattention as a plausible explanation for market reaction to repurchase announcements. We use prior turnover as the proxy for investor attention to examine the difference in stock price performance between low-attention stocks and high-attention stocks. We find that low prior turnover firms experience greater underreaction to repurchase announcements than high prior turnover firms. Low prior turnover firms also experience larger positive long-run excess returns following announcements. Furthermore, a higher level of investor's inattention leads to higher degree of underreactions, resulting in higher actual completion rates.