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R&D Progress, stock price volatility, and post-announcement drift: An empirical investigation into biotech firms


  • Bixia Xu



I investigate the effects of R&D progress on the dynamics of stock price volatility and the post announcement drift to provide insights into whether or not and how capital markets react to corporate R&D progress in the context of the biotech industry. I find both stock price volatility and the post announcement drift decrease in R&D progress. More importantly, the decrease is proportional to the increase in the drug development success rate driven by R&D progress. Findings suggest that R&D progress conveys useful risk-relevant information, and plays an important role in explaining stock price volatility change and market anomalies. Copyright Springer Science + Business Media, LLC 2006

Suggested Citation

  • Bixia Xu, 2006. "R&D Progress, stock price volatility, and post-announcement drift: An empirical investigation into biotech firms," Review of Quantitative Finance and Accounting, Springer, vol. 26(4), pages 391-408, June.
  • Handle: RePEc:kap:rqfnac:v:26:y:2006:i:4:p:391-408
    DOI: 10.1007/s11156-006-7439-x

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    References listed on IDEAS

    1. Francis, Jennifer & LaFond, Ryan & Olsson, Per & Schipper, Katherine, 2003. "Accounting Anomalies and Information Uncertainty," SIFR Research Report Series 13, Institute for Financial Research.
    2. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    3. Louis K. C. Chan, 2001. "The Stock Market Valuation of Research and Development Expenditures," Journal of Finance, American Finance Association, vol. 56(6), pages 2431-2456, December.
    4. repec:bla:joares:v:6:y:1968:i:2:p:159-178 is not listed on IDEAS
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