This thesis analyzes volatility of small capitalization biopharmaceutical stocks after significant one-day price drops. Stock performances after one-day declines of ten percent or greater for companies in the NASDAQ Biotechnology Index were gathered from 2011-2012 to test for evidence of market overreaction. While no substantial evidence was found for overreaction, long-term performance suggested that traders underreact during the initial stock drop, with underreaction most prevalent in stocks seeing an initial one-day drop of at least twenty percent. Overreaction only appeared present when companies saw a stock drop due to negative pipeline results.
For individual investors deciding upon an investment strategy involves self evaluation of aversion to risk, social responsibility, and desired returns. Traditional economic theories proclaim individuals are rational creatures who make investment decisions unemotionally to obtain a desired portfolio performance. Recent economists have challenged these foundational theories by proposing that the decision making process for individuals includes abstract factors of emotions and behavioral ripostes. Through research and surveying individuals from varying demographics, the effect of different emotionally states on investment strategies can be examined. The hypothesis states that younger or less investment educated individuals are more susceptible to emotionally-driven investment decisions than older more experienced investors. The results show these demographics do have differing effects on individuals' investment strategies.
This study presents a test of the efficient market hypothesis, utilizing analysis of mutual fund performance following the turnover of top management for a random sample of 149 matched mutual funds between 2000 and 2014. Abnormal returns are calculated from the matched pairs for different timeframes in the post-departure period. Examination of the results will reveal if long term excess performance can be predicted using only historical returns and the existence of manager turnover for mutual funds. If true the findings will add to the literature rejecting the efficient market hypothesis.