Anomalous Price Behavior Around Repurchase Tender offers 457 One explanation for this behavior is that there might be offsetting benefits fo ent team to compensate for the expropriation of their persona holdings. For example, the repurchase may present an impediment for a potential takeover bid thereby permitting managers to preserve their jobs(Bagwell( 1988) Bagnoli, Gordon, and Lipman( 1987), and Vermaelen (1984). A further benefit to insiders might stem from buying shares before the announcement( Choi 1987)) An alternative to the offsetting benefit explanation is that the market does not fully adjust to the signal conveyed by the offer and therefore underestimates the true"value of the shares. This implies that buying shares after a repurchase tender offer might be a profitable investment, especially in cases where the signalling hypothesis may be most relevant, such as in small firms. 4 Hence, the second trading rule involves buying and holding shares after the expiration date of a repurchase tender offer. Interestingly, in a recent Fortune magazine article Loomis (1986)argues that buying stocks after a repurchase announcement generated annual abnormal returns (over the s&p 500)of 8.5 percent in the period 1974-198 The remainder of this paper is organized as follows In Section I we describe the data base. In Section II we test the first trading strategy: buying stocks before the expiration date whenever the market price is substantially below the tender price, tendering the shares to the firm, and selling the nonrepurchased shares in the market. This simple strategy generates economically and statistically signif- icant abnormal returns of 9 percent on average over a period shorter than one week In Section IIi we examine whether the abnormal returns can be explained by the behavior of management in oversubscribed offers. In Section IV we test the second trading strategy: buying shares after the expiration of the offer. This strategy, over a two-year period following the repurchase outperforms the value weighted index by 12 percent per year. After controlling for size and beta, the abnormal returns fall by more than half but are still significantly positive. Further investigation reveals that these abnormal returns are mainly caused by small firms. These firms were apparently able to buy back their shares at significant discounts from their "true"value. Section V summarizes our results I Data The data base consists of the announcement and expiration dates, the terms (fraction sought and tender price), and outcomes(fraction tendered and fraction purchased) of practically all 258 repurchase tender offers which occurred between 1962 and 1986 by firms traded on the NYSE, AMEx, and OTC. Data for the period 1962-1977 were adopted from Vermaelen( 1981)and include 131 obser vations. Data for 1978 and 1979 were taken from the Wall Street Journal Index Thich started summarizing repurchase announcements in 1978. From 1980 or we had access to all the 13-e4 filing and amendments made with the Security 4We assume that, eventually, with disclosure of financial information about the firm, the market ill be able to assess the"true"value of the shares S A small number of companies were eliminated from the sample because of missing data, mainly