Return to search

Share repurchase announcements and abnormal returns for Swedish listed real estate companies

Asymmetric information in the management-investor relationship implies that the management’s actions will give signals to investors. According to the signalling hypothesis, an announcement of a share repurchase program is interpreted by investors that the management is putting its money where its mouth is, i.e. signalling that the stock is currently undervalued. Using the event study methodology to analyze share repurchases of listed Swedish real estate companies, we find significant short-term abnormal returns of 1,96% on the announcement day and cumulative abnormal returns of 2,32% (although not significant on conventional levels) for the ten first days subsequent to the announcement. At the most fundamental level of corporate finance theory, the Efficient Market Hypothesis stipulates that the whole value of the announcement should be discounted in the stock price immediately. On the other hand, it might be rational for investors to await certainty that the share repurchase program will be executed, before discounting its full value. We find indications of underreaction as the analysis suggests long-term positive stock price reactions to the announcement. The Jensen’s alpha approach utilized in the long-term analysis suggests an average abnormal return of 10,30%, although insignificant on conventional levels, the year following a share repurchase announcement. From a stock investor point of view, the results from this study suggest that buying real estate stocks that announce share repurchase programs can yield positive abnormal returns for investment horizons of 10 days as well as 12 months.

Identiferoai:union.ndltd.org:UPSALLA1/oai:DiVA.org:kth-82045
Date January 2011
CreatorsAxelsson, Lars, Brissman, Philip
PublisherKTH, Bygg- och fastighetsekonomi
Source SetsDiVA Archive at Upsalla University
LanguageEnglish
Detected LanguageEnglish
TypeStudent thesis, info:eu-repo/semantics/bachelorThesis, text
Formatapplication/pdf
Rightsinfo:eu-repo/semantics/openAccess

Page generated in 0.0027 seconds