Signaling with Stock Issues and Repurchases: A Test of Semi-Strong Form Market Efficiency

Document Type

Article

Publication Date

1-2017

Abstract

Past studies on market efficiency suggest that stock repurchase announcements send a positive signal about the firm’s future to investors, thereby significantly increasing the firm’s stock price. Studies done on equity issue announcements suggest that they have the opposite effect and send a negative signal about the firm’s future to investors. According to semi-strong form efficient market hypothesis, it is not possible to consistently outperform the market - appropriately adjusted for risk- by using public information such as stock repurchase and issue announcements. This type of information should be reflected in the firms’ stock prices sufficiently fast to disallow any investors from earning an abnormal return. This study has resulted in mixed conclusions regarding the hypotheses selected. The tests conclude that the market is semi-strong form efficient with respect to both samples, stock repurchase announcements and equity issue announcements.

Link to Full Text

Share

COinS