Rational expectation, firm size, and sample selection bias

Deborah Gunthorpe*, Haim Levy

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

Many firms in the U.S. reduce their size by paying stockholders extra cash dividends, or what is more common, by repurchasing stock. Empirical evidence shows that the market's reaction to a stock repurchase is positive. In this paper we show that the positive market reaction to a stock repurchase stems from a sample selection bias. Under rational expectation and no selection bias, zero market reaction is anticipated.

Original languageEnglish
Pages (from-to)429-432
Number of pages4
JournalEconomics Letters
Volume37
Issue number4
DOIs
StatePublished - Dec 1991

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