R&D Progress, stock price volatility, and post-announcement drift: An empirical investigation into biotech firms

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.