Market Liquidity During Stock Repurchases Period

Abstract

This paper explores stock repurchase effect on market liquidity in Taiwan. Results indicate that bid-ask spreads narrow during the stock repurchase period. Results remain the same after controlling for price, volume, and volatility. Thus, stock repurchase improves market liquidity. This paper finds that, in regard to stock repurchase timing, corporations do not use information advantage to buy back stocks toward cost minimization. Investors also do not withdraw from the market when firms actively buy back their stocks. Therefore, the competing market hypothesis powerfully explains liquidity impact of open market repurchase.