3 ms·
Inflating your stock price by buybacks is easier said than done. In fact according to the CAPM economic model, it is impossible. The assets of the company dec
by btilly 6y ago
Inflating your stock price by buybacks is easier said than done.
In fact according to the CAPM economic model, it is impossible. The assets of the company decrease by the money spent on buybacks, which matches the value of stock bought and destroyed. This should leave the price per remaining stock unchanged.
- na85 6y agoSounds to me like the CAPM economic model is in need of revision. Buybacks are a common tool for increasing shareholder value and investor sentiment figures heavily in asset pricing.
- btilly 6y agoThere are a number of reasons why buybacks can increase prices. See https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/the-value-of-share-buybacks#:~:text=Research%20from%20both%20academics%20and,of%20the%20shares%2C%20see%20prices https://www.mckinsey.com/business-functions/strategy-and-cor... for a list. All are second order effects.