Trading strategy using share buybacks: evidence from India
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Received February 25, 2020;Accepted May 20, 2020;Published June 15, 2020
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Author(s)Link to ORCID Index: https://orcid.org/0000-0002-4637-7378Link to ORCID Index: https://orcid.org/0000-0002-3575-8378Link to ORCID Index: https://orcid.org/0000-0003-3963-5997
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DOIhttp://dx.doi.org/10.21511/imfi.17(2).2020.14
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Article InfoVolume 17 2020, Issue #2, pp. 169-182
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Cited by7 articlesJournal title: Orissa Journal of CommerceArticle title: Forecasting Nifty Using Autoregressive Integrated Moving Average ModelDOI: 10.54063/ojc.2022.v43i03.11Volume: 43 / Issue: 3 / First page: 147 / Year: 2022Contributors: Arup Bramha MohanJournal title: MUDRA: Journal of Finance and AccountingArticle title: Trend of Short-term Returns Generated through Share Buyback Offers in IndiaDOI: 10.17492/jpi.mudra.v9i2.922202Volume: 9 / Issue: 2 / First page: 15 / Year: 2022Contributors: Madhu BalaJournal title: Global Business ReviewArticle title: Wealth Effects of Share Repurchase Decision of IPO Firms: Evidence from IndiaDOI: 10.1177/09721509231184571Volume: / Issue: / First page: / Year: 2023Contributors: Aafreen Khan, Ashu KhannaJournal title: İktisadi İdari ve Siyasal Araştırmalar DergisiArticle title: Pay Geri Alımları ve Getiri Oranları: BİST Geri Alım Endeksinde Ampirik Bir UygulamaDOI: 10.25204/iktisad.1459402Volume: 9 / Issue: 25 / First page: 538 / Year: 2024Contributors: Nida Abdioğlu, Arif Sezgin, Sinan AytekinJournal title: Investment Management and Financial InnovationsArticle title: Open repurchase announcements and abnormal returns of Indian firms: An industry-wise analysisDOI: 10.21511/imfi.20(1).2023.21Volume: 20 / Issue: 1 / First page: 238 / Year: 2023Contributors: Vandana BhamaJournal title: Metamorphosis: A Journal of Management ResearchArticle title: Valuation Effects of Magnitude and Frequency of Share Repurchases: Indian EvidenceDOI: 10.1177/09726225241237307Volume: 23 / Issue: 1 / First page: 23 / Year: 2024Contributors: Jyoti PandeyJournal title: Investment Management and Financial InnovationsArticle title: Announcement effect of tender offer share buyback around turmoil period – evidence from IndiaDOI: 10.21511/imfi.21(3).2024.14Volume: 21 / Issue: 3 / First page: 160 / Year: 2024Contributors: Suresha B., Kavitha Desai, Rejoice Thomas, Nijumon K John, Elizabeth Renju Koshy
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The efficient market hypothesis states that in the efficient markets, participants cannot make extra-normal returns by exploiting any publicly available information. However, traders are constantly looking to exploit publicly available information to generate abnormal returns for themselves and their clients. One such event is share buyback announcement, which traders can utilize to create profitable trading strategies. The authors undertake the present study to examine if share buyback announcements provide profitable trading strategies to traders. Event study methodology has been adopted to analyze buyback announcements by Indian companies from January 2012 to December 2018. Forty-one (41) day window period comprising of 20 days pre-event, an announcement day, and 20 days post-event period is created to analyze the risk-adjusted average abnormal returns. The empirical findings suggest that there are negligible trading opportunities available for investors post announcements. However, significant risk-adjusted returns are found in the pre-event window, indicating that if investors can predict buyback announcements, they may earn extra-normal returns. The study confirms that Indian stock markets are in the semi-strong form of efficiency. The study also provides a profitable trading strategy for investors in the pre-event window. Finally, it also draws the regulators’ attention to see if insider trading could be the reason for abnormal returns in the pre-event window. The authors conclude the results by confirming that Indian markets are semi-strong in market efficiency and by indicating regulatory interventions to control insider trading.
Acknowledgement
The infrastructural support provided by FORE School of Management, New Delhi in completing this paper is gratefully acknowledged.
- Keywords
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JEL Classification (Paper profile tab)G14, G12, G35
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References42
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Tables4
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Figures11
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- Figure 1. Event study timeline (in days)
- Figure 2. Average abnormal returns for 41 days
- Figure 3. Cumulative average abnormal returns for 41 days
- Figure 4. Average abnormal returns for the period of (–20, –1) days
- Figure 5. Average abnormal returns for the period of (–15, –1) days
- Figure 6. Average abnormal returns for the period of (–5, –1) days
- Figure 7. Average abnormal returns for the period of (–3, –1) days
- Figure 8. Average abnormal returns for the period of (–1, 0) days
- Figure 9. Average abnormal returns for the period of (–1,+1) days
- Figure 10. Average abnormal returns for the period of (+2, +5) days
- Figure 11. Average abnormal returns for the period of (+2, +10) days
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- Table 1. Number of buybacks each year
- Table 2. Average abnormal returns (AAR) statistics
- Table 3. Year-wise analysis of AAR results
- Table 4. CAAR for buyback announcements
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Conceptualization
Asheesh Pandey
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Formal Analysis
Asheesh Pandey, Vandana Bhama
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Funding acquisition
Asheesh Pandey, Vandana Bhama, Amiya Kumar Mohapatra
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Investigation
Asheesh Pandey, Amiya Kumar Mohapatra
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Methodology
Asheesh Pandey, Amiya Kumar Mohapatra
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Project administration
Asheesh Pandey
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Resources
Asheesh Pandey, Vandana Bhama
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Supervision
Asheesh Pandey
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Validation
Asheesh Pandey, Amiya Kumar Mohapatra
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Visualization
Asheesh Pandey, Vandana Bhama
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Writing – review & editing
Asheesh Pandey
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Software
Vandana Bhama, Amiya Kumar Mohapatra
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Writing – original draft
Vandana Bhama, Amiya Kumar Mohapatra
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Conceptualization
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