Information Discreteness and the Market Underreaction to Share Repurchase

We discuss how the information flows of firm affect the underreaction to open market share repurchases. Being consistent with the prior literature, we use the data from Taiwan stock market and find significant positive short-term and long-term abnormal returns after the announcement of stock repurchase of firms. After confirming stock price underreaction to open market share repurchases, we use the measure of information discreteness (ID) to identify information flows of firm and find significant negative relationship between information discreteness and abnormal returns within one year. The evidence further suggests that stock price underreaction to open market share repurchases may disappear in the long run.