A MICROSTRUCTURE ANALYSIS OF THE LIQUIDITY IMPACT OF OPEN MARKET REPURCHASES

A MICROSTRUCTURE ANALYSIS OF THE LIQUIDITY IMPACT OF OPEN MARKET REPURCHASES

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Article ID: iaor201112345
Volume: 34
Issue: 3
Start Page Number: 481
End Page Number: 501
Publication Date: Sep 2011
Journal: Journal of Financial Research
Authors: ,
Keywords: Canada
Abstract:

We examine the liquidity impact of Canadian open market repurchases and find that spreads are smaller and depths greater during repurchase programs (as compared to the prerepurchase period) and on repurchase days (as compared to nonrepurchase days). We examine the types of orders used by repurchasing companies and find that all repurchase orders are limit orders and more than 70% of these unambiguously add liquidity to the limit order book. The improved liquidity is consistent with U.S. research but different from results from other markets. We attribute the difference to an uptick restriction that limits the aggressiveness of North American repurchases.

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