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The buyback anomaly and using the undervaluation index on the Johannesburg Stock Exchange
The focus of this study is to add to the available literature on whether companies listed on the Johannesburg Stock Exchange (JSE) deliver persistent long-term excess returns following the announcement of an open market share repurchase. 454 share repurchases across 160 companies were included in th...
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| Format: | Thesis |
| Language: | Eng |
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Department of Finance and Tax
2024
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| _version_ | 1867613261393821696 |
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| access_status_str | Open Access |
| author | Gordon, Matthew |
| author2 | Toerien, Francois |
| author_browse | Gordon, Matthew Toerien, Francois |
| author_facet | Toerien, Francois Gordon, Matthew |
| author_sort | Gordon, Matthew |
| collection | Thesis |
| description | The focus of this study is to add to the available literature on whether companies listed on the Johannesburg Stock Exchange (JSE) deliver persistent long-term excess returns following the announcement of an open market share repurchase. 454 share repurchases across 160 companies were included in the total sample over the period January 2003 to December 2021. Using event study methodology, the buyback anomaly survives the recently developed Fama and French five-factor model: open market share repurchase announcements are followed by statistically significant positive long-term excess returns. Cumulative abnormal average returns (CAARs) of 7.07% and 22.70% were realised after 250 and 720 trading days post- announcement, respectively. The results are consistent with signalling theory and indicate an informationally inefficient market. Furthermore, Peyer and Vermaelen's Undervaluation Index (U-Index) was effective in identifying highly undervalued companies at the time of their respective share repurchase announcements within the total sample. Compared to companies with low to moderate undervaluation scores, companies with high undervaluation scores generated an additional 9.47% after 250 trading days, and 3.57% after 720 trading days within their respective samples. The U-Index improves the predictability of excess returns after an open market share repurchase announcement by companies listed on the JSE. This study makes a significant contribution to the current understanding of long-term excess returns of shares following a share repurchase announcement in South Africa. Furthermore, this study also serves as a test of market efficiency on the JSE and finds that the U-Index offers additional practical application by enhancing various share repurchase related trading strategies. Opportunities for future research on this topic include testing the relationship between positive long-term excess returns and idiosyncratic volatility and combining volatility with Peyer and Vermaelen's undervaluation predictors. |
| format | Thesis |
| id | oai:open.uct.ac.za:11427/39442 |
| institution | University of Cape Town (South Africa) |
| language | Eng |
| last_indexed | 2026-06-10T12:33:19.547Z |
| license_str | Not specified — see source repository |
| provenance_str_mv | Harvested via OAI-PMH from UCTD — University of Cape Town Open Access Repository |
| publishDate | 2024 |
| publishDateRange | 2024 |
| publishDateSort | 2024 |
| publisher | Department of Finance and Tax |
| publisherStr | Department of Finance and Tax |
| record_format | dspace |
| source_str | UCTD — University of Cape Town Open Access Repository |
| spelling | oai:open.uct.ac.za:11427/39442 The buyback anomaly and using the undervaluation index on the Johannesburg Stock Exchange Gordon, Matthew Toerien, Francois Finance and Tax The focus of this study is to add to the available literature on whether companies listed on the Johannesburg Stock Exchange (JSE) deliver persistent long-term excess returns following the announcement of an open market share repurchase. 454 share repurchases across 160 companies were included in the total sample over the period January 2003 to December 2021. Using event study methodology, the buyback anomaly survives the recently developed Fama and French five-factor model: open market share repurchase announcements are followed by statistically significant positive long-term excess returns. Cumulative abnormal average returns (CAARs) of 7.07% and 22.70% were realised after 250 and 720 trading days post- announcement, respectively. The results are consistent with signalling theory and indicate an informationally inefficient market. Furthermore, Peyer and Vermaelen's Undervaluation Index (U-Index) was effective in identifying highly undervalued companies at the time of their respective share repurchase announcements within the total sample. Compared to companies with low to moderate undervaluation scores, companies with high undervaluation scores generated an additional 9.47% after 250 trading days, and 3.57% after 720 trading days within their respective samples. The U-Index improves the predictability of excess returns after an open market share repurchase announcement by companies listed on the JSE. This study makes a significant contribution to the current understanding of long-term excess returns of shares following a share repurchase announcement in South Africa. Furthermore, this study also serves as a test of market efficiency on the JSE and finds that the U-Index offers additional practical application by enhancing various share repurchase related trading strategies. Opportunities for future research on this topic include testing the relationship between positive long-term excess returns and idiosyncratic volatility and combining volatility with Peyer and Vermaelen's undervaluation predictors. 2024-04-25T08:42:03Z 2024-04-25T08:42:03Z 2023 2024-04-24T13:02:09Z Thesis / Dissertation Masters MCom http://hdl.handle.net/11427/39442 Eng application/pdf Department of Finance and Tax Faculty of Commerce |
| spellingShingle | Finance and Tax Gordon, Matthew The buyback anomaly and using the undervaluation index on the Johannesburg Stock Exchange |
| thesis_degree_str | Master's |
| title | The buyback anomaly and using the undervaluation index on the Johannesburg Stock Exchange |
| title_full | The buyback anomaly and using the undervaluation index on the Johannesburg Stock Exchange |
| title_fullStr | The buyback anomaly and using the undervaluation index on the Johannesburg Stock Exchange |
| title_full_unstemmed | The buyback anomaly and using the undervaluation index on the Johannesburg Stock Exchange |
| title_short | The buyback anomaly and using the undervaluation index on the Johannesburg Stock Exchange |
| title_sort | buyback anomaly and using the undervaluation index on the johannesburg stock exchange |
| topic | Finance and Tax |
| url | http://hdl.handle.net/11427/39442 |
| work_keys_str_mv | AT gordonmatthew thebuybackanomalyandusingtheundervaluationindexonthejohannesburgstockexchange AT gordonmatthew buybackanomalyandusingtheundervaluationindexonthejohannesburgstockexchange |