Anomalous Price Behavior Around Repurchase Tender Offers Table ill The Relationship Between Abnormal Return and the Discount of the market Price Relative the Tender Price ts from the following regression are presented: XRET=a shares T1 days before expiration and selling the nonrepur- shares T2 days after the expiration, Pr is the ter e,and Pa is the price Ti days prior to the expiration T1=0,T2=2 -0.008 0.860 0.76 (-1.81)° T1=-1, -0.008 0 (-1.79) (2542) T1=-1,T2=4 0.011 0.845 0.78 (-2.28) Table I Abnormal Returns(in Percent) from Buying on Day-6 and Tendering purchased by the company are old 12 days after the expiration dae g According to the trading rule, shares are bought whenever the market price is at least three percent below the tender offer price. In oversubscribed offers, shares not t-valu 4.95 (110 observations 4.5 5.38 (62 observations) 694 2.90 3.15 (48 observations) 0. 65. The Spearman rank correlation coefficient between the two variables 0.46 and is significant at the 1 percent level In summary, the results show that 1)investors can obtain positive abnormal eturns by purchasing shares that are trading at a discount from the tender price and tendering them to the firm; 2)the profits from the strategy are a function of the size of the discount; 3)the returns realized from the trading rule seem too large to be explained as compensation for risk bearing, especially considering that the strategy is less risky than an average investment in common stock; and 4)it is unlikely that the returns can be explained as a fair compensation for stly information acquisition(as argued by Larcker and Lys(1987))because the trading strategy in a tender offer stock repurchase requires no sophisticated analysIs Ill. Possible Explanations A. Trading Profits and Repurchase Decisions The reason why risk arbitrageurs do not compete the anomaly away may be related to the fact that, at least in oversubscribed offers, the firm,s management