An Investor's Perspective on Infectious Diseases and Their Influence on Market Behavior

Abstract

Abstract.Recently, increasing number of infectious diseases has swept the world. The outbreak of a contagious disease not only affects the health and lives of people but also causes economic growth to stagnate. Business in the biotechnology industry is closely related to infectious diseases but what exactly is the information value of the outbreak of infectious disease on biotechnology? This study investigates how such outbreaks can affect the performance of biotechnology stocks. In the past 10 years, major statutory infectious diseases in Taiwan have included ENTEROVIRUS 71, DENGUE FEVER, SARS and H1N1. The empirical results indicate that there is a significant abnormal return on company shares in Taiwan's biotechnology industry because of statutory infectious epidemics. The relationship between the financial ratios of biotechnology companies and abnormal returns was analyzed as part of this research. The results show that the influence on R&D ratios, current ratios and assets are significant. Empirical findings reveal that the investors rationally measure operating conditions of the biotechnology companies during outbreaks of major infectious disease and adjust portfolio allocation accordingly.

The COVID-19 Outbreak and Affected Countries Stock Markets Response

“…Wang et al, [23] investigated how outbreaks of infectious diseases affected the performance of biotechnology stocks, showing that Taiwan's biotechnology industry had significant abnormal returns due to statutory infectious diseases.…”

“…Mei-ping Chenet al, [22] analyzed the effect of the SARS epidemic on China's long-term relationship with four Asian stock markets their findings support the existence of a time-varying co-integration relationship in aggregate stock price indices, and they also found that the SARS epidemic has weakened China's long-term relationship with the four markets. Wang, Yang, and Chen [23] suggested that infectious disease outbreaks have a major impact on the performance of biotechnology stock in Taiwan. According to Bai [24] Baker, Wurgler, and Yuan [25] investors may feel pessimistic about investment prospects in a given market, selling off that market's stocks under communicable disease outbreak.…”

“…To study the influence in different periods, we set up five event windows consisting of 35 trading days after the event day: (0, 6), (7,13), (14,20), (21,27), (28,34). Referring to related researches [23,38], we define the estimated window of 90 trading days before the event day when studying the influence of infectious diseases on the market behavior. As there is a lot of uncertainty in the stock market, too long a window period may not be accurate.…”

The COVID-19 IMPACT on the ASIAN STOCK MARKETS

“…The literature shows a relationship between stock market returns and pandemic outbreaks (see, inter alia, AlAli, 2020; Bash, 2020; C.-D. Chen et al, 2009;M.-H. Chen et al, 2007;Ichev & Marinč, 2018;Park et al, 2008;and Pendell & Cho, 2013). Thus, many previous studies assert that the fluctuations in stock markets because of epidemics have brought significant economic losses to stock markets (see, inter alia, Bai, 2014;Baker et al, 2012;M.-H. Chen et al, 2007;M.-P. Chen et al, 2018;Del Giudice & Paltrinieri, 2017;Delisle, 2003;Macciocchi et al, 2016;Nippani & Washer, 2004;and Wang et al, 2013).…”

Managing employee change resistance to Business Process Improvement (BPI) in the manufacturing sectors in Singapore

“…The stocks of Taiwanese Hotel showed significant negative cumulative mean abnormal returns, indicating the significant impact of SARS outbreak on the performance in hotel stock. Wang, Yang & Chen (2013) conducted the study to investigate, how infectious disease can affect the performance of biotechnology stocks. The empirical results indicate that there is significant abnormal return on company shares in Taiwan's biotechnology industry due to infectious epidemics.…”