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I proxy price efficiency and information content by employing two groups of
measures for both price delay and idiosyncratic risk. The price delay measures are based on
the relative explanatory power of a simple market model compared to an extended market
model including 5 lags for market returns. The idea is that one observes greater price delays
in the incorporation of new information, if the extended market model has greater
explanatory power than the simple market model (Hou & Moskowitz, 2005). This price delay
decreases when share repurchases improve the speed with which information is assimilated
into share prices. The idiosyncratic risk measures quantify whether share price moves
together with the market. I use the R-squared between the simple and extended market model
as well as the absolute market correlation between stock and market returns to proxy for
idiosyncratic risk. When share prices increasingly co-move with the market the relative
amount of idiosyncratic risk declines. This implies that if share repurchase introduce noise
into share prices the idiosyncratic risk of a stock increases and the information content
declines (Busch & Obernberger, 2016). I use the manually collected weekly repurchase transaction data to construct two
measures of repurchase activity originally theorized by Busch & Obernberger (2016). The
first measure envelopes the monthly number of shares repurchased scaled by the total number
of shares outstanding in the previous month. The second measure approximates the remaining
number of shares that can be bought within the program scaled by the number of shares
outstanding at the beginning of the program. I furthermore incorporate firm fixed effects and
time effects to guarantee that my results are no affected by heterogeneity or macro-economic
factors (Busch & Obernberger, 2016).

Categories: Data


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