Investor Inattention and Under-Reaction to Repurchase Announcements

Lee Young Cheng, Zhipeng Yan, Yan Zhao, Li Ming Gao

Research output: Contribution to journalArticlepeer-review

5 Scopus citations

Abstract

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. JEL Classifications: G14, G15

Original languageEnglish (US)
Pages (from-to)267-277
Number of pages11
JournalJournal of Behavioral Finance
Volume16
Issue number3
DOIs
StatePublished - Jul 3 2015

All Science Journal Classification (ASJC) codes

  • Experimental and Cognitive Psychology
  • Finance

Keywords

  • Investor inattention
  • Repurchase announcements
  • Underreaction

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