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Long-term market reactions to FDA Phase III clinical trials announcements

Author

Listed:
  • Afik, Zvika
  • Lahav, Yaron
  • Zaguri, Bat-El

Abstract

We examine the long-term effects of FDA Phase III clinical trial announcements on the stock prices of pharmaceutical firms. Analyzing 92 events from publicly traded companies, we find that investor reactions vary systematically with firm characteristics. Specifically, markets tend to underreact to failures by large firms and overreact to failures by small firms. We further show that these behavioral patterns are moderated by two additional factors: the firm's headquarters domicile and its FDA track designation. Domestic and foreign firms exhibit different timing and intensity of market response, while fast-track designation appears to dampen extreme reactions to failure announcements. These findings highlight the layered nature of investor behavior in pharmaceutical markets and suggest opportunities for more nuanced trading strategies.

Suggested Citation

  • Afik, Zvika & Lahav, Yaron & Zaguri, Bat-El, 2025. "Long-term market reactions to FDA Phase III clinical trials announcements," Finance Research Letters, Elsevier, vol. 86(PA).
    • Handle: RePEc:eee:finlet:v:86:y:2025:i:pa:s1544612325013947
    DOI: 10.1016/j.frl.2025.108139
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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