Stock buybacks are at record levels and several studies have established windows of alpha opportunity around stock buyback announcements. In this talk EventVestor founder Anju Marempudi and Quantopian client engineer Seong Lee will discuss buyback trends, analyzing share buybacks data for insights, conducting an event study to measure excess returns around buyback announcements, and finally building a trading algorithm with back-testing using the Quantopian Research platform. This presentation was part of the QuantCon 2015 Conference hosted by Quantopian. Visit us at: www.quantopian.com. Quantopian provides this presentation to help people write trading algorithms - it is not intended to provide investment advice. More specifically, the material is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory or other services by Quantopian. In addition, the content neither constitutes investment advice nor offers any opinion with respect to the suitability of any security or any specific investment. Quantopian makes no guarantees as to accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances.

1. Looking For Drift:
Finding Alpha in Share Buyback
Announcements
Anju Marempudi
Seong Lee

2. Objectives
- Overview of Share Buybacks
- Asking the question: How do we find alpha?
- Find out what the data looks like
- Walk through abnormal returns found in event study
- Craft an algorithm based off final results
- Incorporating multiple events with EventVestor

3. What are Share Buybacks?

4. What are Share Buybacks?
- Buying back outstanding
shares
- Tender offer
- Buying from market
- ASR

5. Why Companies Perform Share Buybacks
- Buybacks are increasing in recent years
- Better ROE and ROA
- Value for investors
- Undervalued company
- Tax benefits before 2013
- Buybacks were taxed at capital gains
- Dividends were taxed at income-rates
- Buybacks can backfire
- “It’s just not the way to run a business.” - Buffet

6. How do I find alpha?

7. Finding Alpha
- What does the data look like?
- What do abnormal returns look like around the event?
- Can we use that to create a viable trading strategy?

8. What does the data look like?
Ticker
Event
Date
Size of
BB
Trade
Date

9. Total Number of Announcements
- Average Growth Rate: 8% per year
- From 2007 - 2014: 46% increase

10. Size of Buyback Announcements
- Smaller buybacks are more popular
- ~800 smaller vs. 300 bigger in 2014
- Growing at the same pace: ~11% YoY median increase

11. What do abnormal returns look like?

12. Cumulative Returns vs Benchmark

13. Cumulative versus Abnormal
- Abnormal Returns ~= 0.60%
- Cumulative Returns ~= 1.42%

14. Trends in abnormal return volatility

15. The Trading Strategy

16. PSBAD Algorithm
- Trading on buybacks with a size greater than 7.5%
- Returns: 144.5%
- Sharpe: 1.66
- Drawdown: 16.5%
- Community Post
- Soon live trading available with E*TRADE

17. Event Driven Strategies with EventVestor

18. Growing Popularity of Event-Driven Strats
- 19% increase in net demand for Event-Driven strategies, according to the
2014 Credit Suisse survey.
- Most funds focus on few events, but more and more funds are expanding
to additional corporate events for alpha generation
- Beyond hedge funds, event-driven strategies are gaining ground with
mutual funds and ETFs .
- Corporate Events add significant boost to quant trading strategies
- Event-driven investors are increasingly using the portfolio approach,
building portfolios with high sigma events, there by increasing the portfolio
hit rates
- Hedge funds looking to profit from rising and falling share prices (long/
short equity strategies) also benefit and generate excess returns using
corporate events overlays on market data
- Event-driven strategies provide an alternate investment strategy with low
correlations to economic and market trends.

19. More Alpha Generating Events
- CEO Changes
- Clinical Trials
- FDA Decisions
- PDUFA Dates
- Dividend Changes
- Earnings Releases
- Earnings Guidance
- Index Changes
- Equity Issue
- Insider Transactions
- Activist Transactions
- Litigations and
Regulatory
- Mergers & Acquisitions
- Proxy Contests
- Retail Same Store Sales
- Shareholder Activism
- Spin-offs
- Stock Splits

20. Dividend Initiations
Dividend Initiations 2010 (Under $1B Market Cap)

21. Dividend Increases
Dividend Increases 2010 (Under $1B Market Cap)

22. Raises Earnings Guidance
Raised Quarterly Guidance (S&P 400 - 2011)

23. Withdraw Earnings Guidance
Guidance Withdrawal (Russell 1000)

24. Insider Transactions
Insider Transactions – Sold Shares

25. Proxy Contest
Proxy Context Announcement

26. Spin-off Event-Driven Performance
- Announcements between January 2009 and April 2013

27. EventVestor events to be available in Q10-K Filings Divestment M&A Announcement
10-Q Filings Dividend M&A Approval
13D Filings Downsizing M&A Close
13G Filings Earnings Preview M&A Related
8-K Filings Earnings Release M&A Withdrawal
Alliance Earnings Restatement Patents & Copyrights
Asset Purchase Exec Bonus and Grants PDUFA Dates
Asset Sale Executive Changes Poison Pill
Bankruptcy FDA Filings Product Recall
Board Changes Guidance Product/Service
Business Expansion Impairments and Charges Proxy Contest
Business Unit Close Index Additions Proxy Meeting
Business Unit Purchase Index Deletions Proxy No-Action
Letters
Business Unit Sale Insider Transactions Proxy Voting Results
Business Update Institutional Transactions Redemption
Buyback Investment Refinance
Buyback Update Investor Meeting Reorganization
CEO Change Issue Debt Same Store Sales
Clinical Trials Issue Equity Secondary Pricing
Conference Joint Venture Settlement
Contract Win Layoff Spin-off
Credit Facility Legal/Regulatory Stock Split
Listings Related Strategy
Tender Offer

28. Thank You.
Questions?