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Drug approval decisions: A note on stock liquidity effects

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  • Himmelmann, Achim
  • Schiereck, Dirk

Abstract

We analyze the relationship between positive stock returns, changes in trading activities, and liquidity improvements following drug approval announcements. Using a unique hand-collected data set on approval decisions in Europe, we find that stock liquidity does change. Stocks temporarily exhibit strong abnormal trading volume, lower spreads, and permanently become more liquid. Our results suggest that the initial positive wealth effect of a new drug release reflects both positive information content and liquidity improvements.

Suggested Citation

  • Himmelmann, Achim & Schiereck, Dirk, 2012. "Drug approval decisions: A note on stock liquidity effects," Journal of Empirical Finance, Elsevier, vol. 19(5), pages 640-652.
    • Handle: RePEc:eee:empfin:v:19:y:2012:i:5:p:640-652
    DOI: 10.1016/j.jempfin.2012.06.001
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    Cited by:

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    2. Berkman, Henk & Eugster, Marco, 2017. "Short on drugs: Short selling during the drug development process," Journal of Financial Markets, Elsevier, vol. 33(C), pages 102-123.
    3. Donadelli, Michael & Kizys, Renatas & Riedel, Max, 2016. "Globally dangerous diseases: Bad news for Main Street, good news for Wall Street?," SAFE Working Paper Series 158, Leibniz Institute for Financial Research SAFE.
    4. Donadelli, Michael & Kizys, Renatas & Riedel, Max, 2017. "Dangerous infectious diseases: Bad news for Main Street, good news for Wall Street?," Journal of Financial Markets, Elsevier, vol. 35(C), pages 84-103.

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    More about this item

    Keywords

    Product innovation; Abnormal stock return; Stock liquidity;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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