International Journal of Econometrics and Financial Management
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International Journal of Econometrics and Financial Management. 2014, 2(3), 102-113
DOI: 10.12691/ijefm-2-3-3
Open AccessArticle

The Impact of Investor Heterogeneity in Beliefs on Share Repurchase

Hao Wang1 and Xiaochun Liu2,

1Model Development Department, Regions Bank, Birmingham AL, USA

2Department of Economics, Emory University, Atlanta GA, USA

Pub. Date: August 20, 2014

Cite this paper:
Hao Wang and Xiaochun Liu. The Impact of Investor Heterogeneity in Beliefs on Share Repurchase. International Journal of Econometrics and Financial Management. 2014; 2(3):102-113. doi: 10.12691/ijefm-2-3-3

Abstract

In this paper, we propose a new share repurchasing model to show the impact of the heterogeneity of investor beliefs on share repurchase. We first provide a comprehensive survey on the literature of share repurchases which has not been considered by previous studies, to the best of our knowledge. We review both the theoretical model structures and the major empirical results including various measures of divergence of opinion developed in the literature. Our new repurchasing model uses actual share repurchases to show that investors’ divergence of opinion on the firm value matters in a manager’s share repurchase decision. The long-term stock price performance is consistent with our model predictions.

Keywords:
actual share repurchases heteroscedastic expectations asset pricing divergence of opinion

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