Dangerous infectious diseases: Bad news for Main Street, good news for Wall Street?

ABSTRACT: We examine whether investor mood, driven by World Health Organization (WHO) alerts and media news on dangerous infectious diseases, is priced in pharmaceutical companies' stocks in the United States. We argue that disease-related news (DRNs) should not trigger rational trading. We find that DRNs have a positive and significant sentiment effect among investors (on Wall Street). The effect is stronger (weaker) for small (large) companies, who are less (more) likely to engage in the development of new vaccines. A potential negative investor climate (on Main Street) – induced by disease-related fear – does not alter the positive sentiment effect. Highlights • We examine whether investor mood, driven by World Health Organization alerts on infectious diseases, is priced in pharmaceutical stocks in the U.S.• Disease-related fear has a negative and significant effect on returns on pharmaceutical stocks.• Disease-related news (DRN) has a positive and significant effect on returns on pharmaceutical stocks.• The effect of DRN persists over several days following a WHO alert on infectious diseases.• The effect of DRN is stronger for smaller companies and is weaker for larger companies.• Our findings give rise to profitable trading strategies.

SUBMITTER: Donadelli M 

PROVIDER: S-EPMC7148704 | biostudies-literature | 2016 Dec

REPOSITORIES: biostudies-literature