Anticipating the value of share repurchase announcements: The role of short sellers

Abstract

This study investigates whether short sellers anticipate undervaluation information before a repurchase announcement. Apart from exploring investment opportunities via searching for unfavourable information, short sellers should have the same incentive to identify favourable information to prevent potential losses. An observed significant negative relation between pre-announcement short selling activities and announcement abnormal returns supports the informed hypothesis. This negative relation is stronger under high levels of information asymmetry, and more significant when the repurchase announcement is associated with the undervaluation.