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Share repurchase announcements and abnormal returns for Swedish listed real estate companies
KTH, School of Architecture and the Built Environment (ABE), Real Estate and Construction Management, Building and Real Estate Economics.
KTH, School of Architecture and the Built Environment (ABE), Real Estate and Construction Management, Building and Real Estate Economics.
2011 (English)Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesis
Abstract [en]

Asymmetric information in the management-investor relationship implies that the management’s actions will give signals to investors. According to the signalling hypothesis, an announcement of a share repurchase program is interpreted by investors that the management is putting its money where its mouth is, i.e. signalling that the stock is currently undervalued. Using the event study methodology to analyze share repurchases of listed Swedish real estate companies, we find significant short-term abnormal returns of 1,96% on the announcement day and cumulative abnormal returns of 2,32% (although not significant on conventional levels) for the ten first days subsequent to the announcement. At the most fundamental level of corporate finance theory, the Efficient Market Hypothesis stipulates that the whole value of the announcement should be discounted in the stock price immediately. On the other hand, it might be rational for investors to await certainty that the share repurchase program will be executed, before discounting its full value. We find indications of underreaction as the analysis suggests long-term positive stock price reactions to the announcement. The Jensen’s alpha approach utilized in the long-term analysis suggests an average abnormal return of 10,30%, although insignificant on conventional levels, the year following a share repurchase announcement. From a stock investor point of view, the results from this study suggest that buying real estate stocks that announce share repurchase programs can yield positive abnormal returns for investment horizons of 10 days as well as 12 months.

Place, publisher, year, edition, pages
2011. , 39 p.
Keyword [en]
Real Estate, Share repurchase, Signalling, Underreaction, Jensen’s alpha, Event study, Efficient Market, Principal-Agent, Modigliani-Miller, Swedish listed real estate companies
National Category
Civil Engineering
URN: urn:nbn:se:kth:diva-82045OAI: diva2:497867
Subject / course
Educational program
Master of Science - Real Estate Management
Available from: 2012-02-15 Created: 2012-02-11 Last updated: 2012-02-15Bibliographically approved

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