Timing the market with own stock: an extensive analysis with buying and selling evidence

Abstract

Purpose

Are firms able to time the market? The purpose of this paper is to focus on the study of own stock trading, emphasizing both repurchase and resell operations on the open market as well as over the counter.

Design/methodology/approach

The authors use data on 37,997 own stock transactions from 2005 to 2015 of Euronext Lisbon listed firms. Following Dittmar and Field (2015), this paper uses relative transaction prices to ascertain the relative performance of own stock transactions, in the open market and over the counter.

Findings

Results show that firms can time both repurchases as well as resales. Firms repurchase (resell) at lower (higher) prices than those prevailing in the market. Moreover, market-timing ability proves to be higher after the bailout period and to be influenced by the own stock trading frequency. Trading on the open market allows for increased timing ability for own stock repurchasing and reselling activity. Finally, results show seasonal effects both in repurchase and resale performance. Also, more efficient but less valuable firms are more likely to be successful in timing the market.

Originality/value

The authors study both the repurchasing and the reselling activity of the same set of firms, of already issued stock, using high-frequency (daily) data. In addition, the authors study own stock trading both in the open market and OTC, and also study the impact of a major economic shift on the firms’ ability to time the market.

Citation

Santos, D.D. and Gama, P. (2020), "Timing the market with own stock: an extensive analysis with buying and selling evidence", International Journal of Managerial Finance, Vol. 16 No. 2, pp. 141-164. https://doi.org/10.1108/IJMF-05-2019-0194