Abnormal returns around the announcement of clinical trial study results and FDA regulatory decisions
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School of Business |
Master's thesis
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Authors
Date
2020
Department
Major/Subject
Mcode
Degree programme
Finance
Language
en
Pages
55 + 6
Series
Abstract
Stock returns around Phase II, Phase III and FDA Regulatory decision announcements are relatively unexploited topics studied in finance due to the sample size restrictions. The event study methodology was used to analyze the returns around the announcements using t(-20,+20) CAR window and t(-40,+40) event window. Sample sizes used in the study: Phase II (403 main sample, 275 sub-sample), Phase III (476 main sample, 211 sub-sample) and FDA regulatory decisions (455 main sample, 263 sub-sample). The results show that the new information released from the study results is not known beforehand and gets incorporated into the stock prices accordingly, causing abnormal event and post-event returns, in line with the outlying distant foundations in finance (Ball & Brown, 1968). Furthermore, as previous literature found different return patterns for positive and negative announcements (Overgaard et al., 2000; Rothenstein et al., 2011), this study showed that there is no pre-event abnormal return difference between positive and negative announcements that could indicate information leakage before the announcement. To support this finding, market reaction asymmetry between positive and negative announcements was found to be explanatory by the expected probability of success of the compound in each stage (e.g. Phase II, Phase III and FDA Regulatory Decision), especially for companies with a market capitalization above $ 1,982 Million. For below $ 1,982 Million market capitalization companies, the M&A premia after successful study results and financial distress after negative study results are possible explanations on why the stage-specific success-rates are not able to explain the market reaction asymmetry between positive and negative announcements. This study indicates that all market participants have access to the same level of information while assessing the companies, causing investors to value companies primarily on their expected stagespecific success-rates empirically found in the literature (Wong et al., 2019).Description
Thesis advisor
Rantapuska, EliasKeywords
Clinical Trials, FDA Announcements, Stock returns, Phase III, Phase II