The Long-term Effects Of Investor Sentiment And Global Economic Policy Uncertainty On Share Buybacks

As an important mechanism for capital allocation and value payment,share repurchases are favored by listed companies for their flexibility and independence.Since 2015,the number of share buyback announcements in China has increased rapidly.Compared with the developed capital markets in Europe and the United States,China’s stock market is an emerging market with an imperfect system and less rational investor behavior.Meanwhile,with economic globalization and the deep integration of the world economy,the economic and financial activities of different countries are increasingly intertwined,various risks are emerging,global economic uncertainty has increased,and the stock market is very sensitive to changes in economic policies.Based on the characteristics of our stock market,this paper analyzes whether investor sentiment and global economic policy uncertainty lead to undervaluation of repurchasing companies from a global perspective,i.e.,generating higher abnormal returns after the repurchase.This paper relaxes the assumptions on rational behavior of economic agents and efficient market,discusses the characteristics of China’s stock market and the status of being affected by global economic policy uncertainty,and conducts the share repurchase undervaluation hypothesis analysis based on institutional background and related theories.At the same time,monthly repurchase data of A-shares from 2008 to 2020 are selected and grouped by investor sentiment and global economic policy uncertainty as well as the interaction term of both,and share repurchase returns are tested for differences through event analysis,and the possible effects of size and prior abnormal returns are excluded.The relationship between the three and abnormal share repurchase returns is then investigated through a Carhart four-factor model,and robustness tests are conducted through multiple regressions as well as by replacing proxy variables.In terms of research idea,different from the traditional asset pricing and corporate finance problems,the behavioral finance theory is combined with a global perspective for the first time to analyze the factors influencing share repurchase mispricing.In terms of research methodology,this paper constructs for the first time an interaction term between investor sentiment and global economic policy uncertainty for the study,and for the first time distinguishes overseas operations to test the heterogeneity of the impact of global economic policy uncertainty on share repurchases,which contributes to the integration and development of theories in different fields.The study finds that share repurchases are most likely to be mispriced when investor sentiment is high or global economic policy uncertainty is low.As a result,stock returns are higher after repurchases.The interaction of investor sentiment and global economic policy uncertainty can also explain stock returns after share repurchases,and this part of the returns is not explained by other factors.Firms with overseas operations are also found to be more affected by global economic policy uncertainty and have higher abnormal post-repurchase returns.The results of this paper supplement the global perspective of the irrational behavior of the literature,to broaden and integrate the open market repurchase research has important reference value,provide theoretical support for international investment activities,and for policy makers,regulators,listed companies and investors in the corresponding advice.