The impact of patent activity on idiosyncratic volatility in U.S. pharmaceutical companies
Emre Atilgan, Fethiye Burcu Türkmen Ceylan, Ömer Tuğsal Doruk, Hasan Murat Ertuğrul, Ahmet Yasir Barak
TL;DR
This study explores how patent activity affects stock price volatility in U.S. pharmaceutical companies, finding that innovation reduces risk mainly after products are launched.
Contribution
The study reveals how different stages of pharmaceutical development impact firm-specific risk, with distinct effects for early and late-stage projects.
Findings
Patent activity overall reduces idiosyncratic volatility in pharmaceutical firms.
Early and mid-stage drug development increases firm-specific risk due to uncertainty.
Newly launched products significantly lower volatility, showing risk mitigation at commercialization.
Abstract
This study examines the impact of patent activity on the idiosyncratic volatility (IVOL) of U.S. pharmaceutical companies, addressing a critical gap in the literature on the relationship between innovation and firm-specific risk. Using panel data from Thomson Reuters/Refinitiv covering 2,910 firms over 2005−2024, we employ the Fama-French 5-factor model to isolate firm-specific volatility and analyze how patent events and pharmaceutical development activities affect stock price risk. Our findings reveal a complex relationship between innovation and volatility that varies by development stage. While patent activity overall reduces idiosyncratic volatility, early and mid-stage development projects (Phase I and II) initially increase firm-specific risk, reflecting inherent uncertainties in drug development. Conversely, newly launched products significantly reduce volatility, indicating…
Genes, proteins, chemicals, diseases, species, mutations and cell lines named across the full text — each resolved to its canonical identifier and authoritative record.
Click any figure to enlarge with its caption.
Figure 1
Figure 2
Figure 3
Figure 4
Figure 5
Figure 6
Figure 7
Figure 8
Figure 9
Figure 10
Figure 11
Figure 12
Figure 13
Figure 14
Figure 15
Figure 16
Figure 17
Figure 18
Figure 19
Figure 20
Figure 21Peer Reviews
No public reviews on file for this paper yet. If you reviewed it on a platform where reviews are public (OpenReview, ICLR, NeurIPS, ICML), you can paste yours below so the community can read it here.
Videos
No videos yet. Explain this paper in a talk, walkthrough, or lecture? Add one.
Taxonomy
TopicsIntellectual Property and Patents · Pharmaceutical Economics and Policy · Innovation Policy and R&D