Market timing in open market bond repurchases

03/08/2022 |  Steinberg Nadav, Wohl Avi
All Press Releases In Subject:
The Financial Markets and Financial Stability
Abstract

Bond repurchases are widespread in the US and other markets but data limitations have thus far prevented market-timing analysis. We fill this gap using unique daily data from Israel and show that firms time the market in their actual open-market bond repurchases. Firms repurchase their bonds following a decline in bond prices. The disclosure of bond repurchases results in significantly positive abnormal returns on the repurchased bonds and is followed by a positive drift in subsequent 5 trading days. The market reaction to actual bond repurchases is timelier when conducted within a pre-announced repurchase program, and the impact is stronger when the firm repurchases high-yield bonds. Insiders’ net purchases increase prior to bond repurchases, and the abnormal return following a bond repurchase tends to be higher when it is preceded by positive net insider purchases. The results lend support to the information motive for bond repurchases.

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