The Impact of Asset Repurchases and Issues in an Experimental Market

E. Haruvy, C.N. Noussair, O.R. Powell

Research output: Working paperDiscussion paperOther research output

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Abstract

Abstract: We create an experimental asset market in which we conduct share repurchases and share issues. Although the intrinsic value of the shares is independent of the quantity outstanding, the interventions result in changes in asset price. Specifically, we find the following. (1) A repurchase of shares increases the price of the asset, and a share issue decreases the price of the asset, compared to a benchmark of no intervention. These effects are consistent with downward-sloping demand for the asset. (2) The empirical patterns observed are consistent with a model based on that proposed by DeLong et al. (1990), which posits three trader types-- fundamental, speculator, and momentum-interacting in the market. (3) The downward pressure on prices resulting from share issues drives prices down toward, but not beyond, fundamental values. This downward resistance at the fundamental value is predicted by the model, in which it arises from the impact of an intervention on the proportion of the total stock of units and cash held by each trader type.
Original languageEnglish
Place of PublicationTilburg
PublisherEconomics
Number of pages39
Volume2012-092
Publication statusPublished - 2012

Publication series

NameCentER Discussion Paper
Volume2012-092

Fingerprint

Repurchase
Experimental markets
Assets
Traders
Fundamental values
Benchmark
Experimental asset markets
Cash
Asset prices
Intrinsic value
Share repurchases
Proportion
Speculators
Momentum

Keywords

  • experiment
  • share issue
  • share repurchase
  • bubble

Cite this

Haruvy, E., Noussair, C. N., & Powell, O. R. (2012). The Impact of Asset Repurchases and Issues in an Experimental Market. (CentER Discussion Paper; Vol. 2012-092). Tilburg: Economics.
Haruvy, E. ; Noussair, C.N. ; Powell, O.R. / The Impact of Asset Repurchases and Issues in an Experimental Market. Tilburg : Economics, 2012. (CentER Discussion Paper).
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Haruvy, E, Noussair, CN & Powell, OR 2012 'The Impact of Asset Repurchases and Issues in an Experimental Market' CentER Discussion Paper, vol. 2012-092, Economics, Tilburg.

The Impact of Asset Repurchases and Issues in an Experimental Market. / Haruvy, E.; Noussair, C.N.; Powell, O.R.

Tilburg : Economics, 2012. (CentER Discussion Paper; Vol. 2012-092).

Research output: Working paperDiscussion paperOther research output

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N2 - Abstract: We create an experimental asset market in which we conduct share repurchases and share issues. Although the intrinsic value of the shares is independent of the quantity outstanding, the interventions result in changes in asset price. Specifically, we find the following. (1) A repurchase of shares increases the price of the asset, and a share issue decreases the price of the asset, compared to a benchmark of no intervention. These effects are consistent with downward-sloping demand for the asset. (2) The empirical patterns observed are consistent with a model based on that proposed by DeLong et al. (1990), which posits three trader types-- fundamental, speculator, and momentum-interacting in the market. (3) The downward pressure on prices resulting from share issues drives prices down toward, but not beyond, fundamental values. This downward resistance at the fundamental value is predicted by the model, in which it arises from the impact of an intervention on the proportion of the total stock of units and cash held by each trader type.

AB - Abstract: We create an experimental asset market in which we conduct share repurchases and share issues. Although the intrinsic value of the shares is independent of the quantity outstanding, the interventions result in changes in asset price. Specifically, we find the following. (1) A repurchase of shares increases the price of the asset, and a share issue decreases the price of the asset, compared to a benchmark of no intervention. These effects are consistent with downward-sloping demand for the asset. (2) The empirical patterns observed are consistent with a model based on that proposed by DeLong et al. (1990), which posits three trader types-- fundamental, speculator, and momentum-interacting in the market. (3) The downward pressure on prices resulting from share issues drives prices down toward, but not beyond, fundamental values. This downward resistance at the fundamental value is predicted by the model, in which it arises from the impact of an intervention on the proportion of the total stock of units and cash held by each trader type.

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Haruvy E, Noussair CN, Powell OR. The Impact of Asset Repurchases and Issues in an Experimental Market. Tilburg: Economics. 2012. (CentER Discussion Paper).