HOW DO DIFFERENT FIRMS PERFORM WHILE TRADING OWN STOCK? A GRANULAR ANALYSIS ON SPECIFIC CHARACTERISTICS AND MARKET CONDITIONS

Dinis Santos; Paulo M Gama

doi:10.20472/ES.2020.9.2.005

Authors

Dinis Santos Faculty of Economics, University of Coimbra, Portugal Author
Paulo M Gama CeBER & Faculty of Economics, University of Coimbra, Portugal Author

DOI:

https://doi.org/10.20472/ES.2020.9.2.005

Keywords:

Repurchase, Resale, Own Stock, Opportunistic Behaviour, Market Timing, Own Stock Transaction Performance

Abstract

This paper investigates which firms are more likely to time the market. Using a relative transaction price approach, it analyzes 37,997 own-stock transactions from firms listed on Euronext Lisbon over the period 2005–2015 to estimate the relationship between firms’ market timing ability and a set of firm-specific characteristics. The results show that smaller, more efficient but less valuable firms are more likely to successfully time the market. Furthermore, the study finds that a major event such as a country bailout can lead to improved performance when firms trade their own stock. Additionally, there is evidence that over-the-counter (OTC) trading is associated with lower market timing capabilities. Finally, given the considerable weight of the financial sector in the sample, separate estimations are conducted, showing that the higher the relative performance of a firm compared to its share value, the greater the ability of financial sector firms to time the market when repurchasing their own stock.

Data:
Received: 6 Oct 2020
Revised: 22 Nov 2020
Accepted: 6 Dec 2020
Published: 20 Dec 2020