The outperformance of repurchasing firms with a high book-to-market (B/M) ratio is usually explained by investors’ undervaluation of the firm’s past performance. However, several studies suggest that the underestimation of future intangible value may explain the high return associated with the share repurchase. To better understand the actual information content of repurchases, I decompose the B/M ratio into past tangible information and future intangible information and find that repurchase signals an undervaluation of the intangible return. In addition, I investigate several potential proxies for intangible information—R&D expenses, intangible assets, and future operating performance. My results show that intangible information signals the undervaluation of future operating performance.

The recent global financial crisis demonstrates that market liquidity is a prominent systematic risk globally. We find that local liquidity risk, in addition to the local market, value and size factors, demands a systematic premium across stocks in 11 developed markets. This local pricing premium is smaller in countries where the country-level corporate boards are more effective and where there are less insider trading activities. We also discover that global liquidity risk is a significant pricing factor across all developed country market portfolios after controlling for global market, value, and size factors. The contribution of this risk to the return on a country market portfolio is economically and statistically significant within and across regions.

This paper studies operational risk in the hedge fund industry using due diligence reports. Many funds suffer from operational problems, including limited disclosure of legal and regulatory issues. We use direct evidence of inadequate or failed internal processes to derive a canonical correlation-based measure for operational risk consistent with the Basel definition. It controls for selection bias using an extension of Heckman's (1979) procedure. Operational risk increases the likelihood of subsequent poor performance and fund disappearance, but does not influence investors’ return-chasing behavior. Our study emphasizes the importance of information verification in the context of financial intermediation.