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How does news affect biopharma stock prices?: An event study

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  • Joonhyuk Cho
  • Manish Singh
  • Andrew W Lo

Abstract

We investigate the impact of information on biopharmaceutical stock prices via an event study encompassing 503,107 news releases from 1,012 companies. We distinguish between pharmaceutical and biotechnology companies, and apply three asset pricing models to estimate their abnormal returns. Acquisition-related news yields the highest positive return, while drug-development setbacks trigger significant negative returns. We also find that biotechnology companies have larger means and standard deviations of abnormal returns, while the abnormal returns of pharmaceutical companies are influenced by more general financial news. To better understand the empirical properties of price movement dynamics, we regress abnormal returns on market capitalization and a sub-industry indicator variable to distinguish biotechnology and pharmaceutical companies, and find that biopharma companies with larger capitalization generally experience lower magnitude of abnormal returns in response to events. Using longer event windows, we show that news related to acquisitions and clinical trials are the sources of potential news leakage. We expect this study to provide valuable insights into how diverse news types affect market perceptions and stock valuations, particularly in the volatile and information-sensitive biopharmaceutical sector, thus aiding stakeholders in making informed investment and strategic decisions.

Suggested Citation

  • Joonhyuk Cho & Manish Singh & Andrew W Lo, 2024. "How does news affect biopharma stock prices?: An event study," PLOS ONE, Public Library of Science, vol. 19(1), pages 1-18, January.
    • Handle: RePEc:plo:pone00:0296927
    DOI: 10.1371/journal.pone.0296927
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    References listed on IDEAS

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    1. Arin, K. Peren & Ciferri, Davide & Spagnolo, Nicola, 2008. "The price of terror: The effects of terrorism on stock market returns and volatility," Economics Letters, Elsevier, vol. 101(3), pages 164-167, December.
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    1. Lin, Mei-Chen, 2024. "Salience, psychological anchors, and stock return predictability," Pacific-Basin Finance Journal, Elsevier, vol. 88(C).

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