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A MICROSTRUCTURE ANALYSIS OF THE LIQUIDITY IMPACT OF OPEN MARKET REPURCHASES
Author(s) -
McNally William J.,
Smith Brian F.
Publication year - 2011
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.2011.01299.x
Subject(s) - market liquidity , open market operation , business , monetary economics , limit (mathematics) , order (exchange) , economics , finance , mathematics , monetary policy , mathematical analysis
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.