Explorations into market timing factors

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This dissertation consists of three essays on factors that influence how managers choose when to pursue important company investment decisions and the quality of those investment decisions. The dissertation research seeks to more fully develop researchers' understanding of whether stock prices influence when companies decide to repurchase company stock and when they decide to sell additional stock and whether or not internal behavioral biases and pressures from large external investors further influences these decisions. My results further strengthen the notion that behavioral finance needs a stronger presence within the corporate finance realm. The first essay investigates how the presence of large external activist hedge fund investors distorts corporate stock repurchase policy. I show that prior to being targeted companies repurchase stock less often than their peers and that the converse is true after these firms are targeted by activist hedge funds. Moreover, I find that this stock repurchase increase leads to repurchases that are seemingly less correlated with market timing attempts and are of worse quality than their non-targeted peers. The second essay investigates how managerial overconfidence affects how corporate managers time their repurchases with market undervaluation periods. I find that overconfidence seemingly elicits an increased propensity to repurchase stock and that this behavioral bias can account for the popularly held notion that managers repurchase poorly. An additional analysis of market liquidity surrounding the repurchase suggests that investors believe moderately confident repurchases are informed trades aimed at benefitting from a temporarily low stock price while overconfident repurchases are not. The third essay investigates how managerial overconfidence affects seasoned equity offerings and how likely management is to issue such an offering alongside periods of temporary stock price overvaluation. I find that overconfident managers are generally no less likely to offer equity than their moderately confident peers; however, as stock returns increase moderately confident managers are significantly more likely to pursue equity offerings. Additionally, an analysis of short-term cumulative abnormal returns and long-term buy-and-hold abnormal returns provides evidence that overconfident equity offerings are less likely to be market timing attempts when compared to moderately confident attempts.

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