Stock price dynamics of Nordic pharmaceutical firms - An event study of scientific announcements

Sammanfattning: The pharmaceutical industry is characterized by advanced preclinical and clinical scientific research with the utmost goal to develop new drugs that can improve human health. There is currently lack of comprehensive information on how the stock market values different scientific achievements in relation to the development phase of pipeline drugs. In this thesis it is therefore investigated and analyzed how the stock price of pharmaceutical firms develops in relation to a diverse range of scientific announcements. By integrating data from Swedish, Norwegian, Danish and Finnish stock markets, a total of 66 pharmaceutical companies are analyzed using event study methodology and regression models of cumulative abnormal returns. 714 scientific announcements are analyzed and grouped into nine different categories of positive and negative announcements. In general, reporting of scientific data was found to result in various stock market responses. Abnormal returns could be observed for all nine announcement groups at the announcement date. The magnitude of abnormal return was found to be larger for negative announcements than their positive counterparts. The highest cumulative abnormal return following a positive announcement was unexpectedly noted for preclinical data release. Furthermore, significant cumulative abnormal returns were observed in the pre- and post-event window for many types of announcements. The data indicates that the market overreacts to positive scientific announcements in early phases of the drug development process, with subsequent negative cumulative abnormal return in the trading days following the positive announcement. This event study also shows signs of information leakage a few trading days before positive and negative clinical trial announcements. Taken together, this study provides valuable information to investors on how the stock market values scientific achievements and questions the strong efficient market hypothesis.