Abstract
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.
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Xu, B. R&D Progress, stock price volatility, and post-announcement drift: An empirical investigation into biotech firms. Rev Quant Finan Acc 26, 391–408 (2006). https://doi.org/10.1007/s11156-006-7439-x
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DOI: https://doi.org/10.1007/s11156-006-7439-x