Temporal Optionality in Share Buybacks : Hypothesizing an Inevitable Brokerage Outperformance

This hypothesis paper explores a potential anomaly within the realm of share buybacks, positing an inevitable brokerage outperformance due to temporal optionality. The hypothesis under examination is that brokerage firms, regardless of stock price movements, can consistently outperform due to their unique position in executing average price buybacks. Should the broker achieve a lower average price than the volume-weighted average price (VWAP) over the buyback period, it could result in a persistent outperformance, thereby inflicting a camouflaged cost on the corporation implementing the buyback. While grounded in existing research, this hypothesis provides a fresh perspective, urging for empirical scrutiny