Idiosyncratic risk and share repurchases

•A potential risk-based explanation for the repurchase anomaly.•The post-repurchase outperformance reflects high idiosyncratic risk exposure.•The idiosyncratic risk factor captures the movement of the stock return.

The 'open market share repurchase anomaly' occurs when stocks of repurchasing firms subsequently outperform non-repurchasing firms matched on several firm characteristics. We document that the post-repurchase outperformance reflects higher idiosyncratic risk exposure for repurchasing firms than matching firms. A possible explanation is that, as firms' leverage increases due to share repurchases, their exposure to idiosyncratic risk rises, thus increasing their stocks' expected returns relative to matched firms.