Clinical Trials and Stock Return Volatility

Clinical trials represent events that drive volatility in the biopharmaceutical sector through their binary characteristics, creating unique challenges for risk assessment. The study examines what factors drive stock return volatility for the top 25 US-listed biopharma companies around the release of clinical trial results. Analyzing 3380 clinical trial events between 2010-2020, this study employs a pooled OLS approach on an unbalanced panel of firm-event observations. We utilize five model specifications to examine how market-, firm- and trial-specific variables, available prior to announcement, drive stock return volatility. Our findings indicate that market conditions are the primary determinants of event-window volatility. The results support both volatility clustering and the information asymmetry hypotheses. Furthermore, while oncology trials are generally associated with lower volatility, we found that this stabilizing effect diminishes as trial duration increases.