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Systematic risk in the biopharmaceutical sector: a multiscale approach

Author

Listed:
  • Gazi Salah Uddin

    (Linköping University)

  • Muhammad Yahya

    (Inland Norway University of Applied Sciences)

  • Stelios Bekiros

    (University of Malta
    European University Institute)

  • Raanadeva Jayasekera

    (Trinity Business School)

  • Gerhard Kling

    (University of Aberdeen)

Abstract

It is well documented that the biopharmaceutical sector has exhibited weak financial returns, contributing to underinvestment. Innovations in the industry carry high risks; however, an analysis of systematic risk and return compared to other asset classes is missing. This paper investigates the time–frequency interconnectedness between stocks in the biotech sector and ten asset classes using daily cross-country data from 1995 to 2019. We capture investors' heterogeneous investment horizons by decomposing time series according to frequencies. Using a maximal overlap discrete wavelet transform (MODWT) and a dynamic conditional correlation (DCC)-Student-t copula, diversification potentials are revealed, helping investors to reap the benefits of investing in biotech. Our findings indicate that the underlying assets exhibit nonlinear asymmetric behavior that strengthens during periods of turmoil.

Suggested Citation

  • Gazi Salah Uddin & Muhammad Yahya & Stelios Bekiros & Raanadeva Jayasekera & Gerhard Kling, 2023. "Systematic risk in the biopharmaceutical sector: a multiscale approach," Annals of Operations Research, Springer, vol. 330(1), pages 243-266, November.
    • Handle: RePEc:spr:annopr:v:330:y:2023:i:1:d:10.1007_s10479-021-04402-8
    DOI: 10.1007/s10479-021-04402-8
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    More about this item

    Keywords

    OR in medicine; Biotech; Time-varying copulas; Wavelets; Risk management;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
    • G1 - Financial Economics - - General Financial Markets
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics

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