Disclosing Indications of R&D Effects on Large U.S. Pharmaceutical Stocks

Stian Olsen & Julie Marie Jacobsen Aspelund

Student thesis: Master thesis


The willingness to invest in research and development expenditures rapidly increases for the pharmaceutical industry, where the focus differs significantly compared to previous decades. As the technology becomes more advanced, the corporations tailor their efforts to build competitive advantages. Thus, the purpose of this thesis is to explore if research and development nurtures the stock prices of pharmaceutical corporations. We explore relevant research and development constructs influencing excess return settings based on observed market tendencies. This includes assessing the different effects between market capitalization over revenue, as well as testing if long- and short-term lags result in different outcomes for performance. The nuance and nature of such estimations are reflected upon in a profound manner. Though stock prices may be fostered through research and development in many different aspects for many different corporations, this thesis is limited to the scope of the American pharmaceutical market. In order to answer our research question, ordinary least square and mathematical measures of financial ratios have been conducted. The latter developed by the renowned William Sharpe and Jack Treynor, are followed by the Capital asset pricing model, the Fama-French Three-factor model and the Fama-French-R&D Four-factor model. Our constructed theoretical framework is based on literature to guide the study. The study concludes that research and development cannot be seen as a factor that generates significantly different excess return compared to the market. However, there are findings that support a relationship for individual firms.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2021
Number of pages199