Has the COVID-19 Pandemic Led to a Switch in the Volatility of Biopharmaceutical Companies?

Author:

Davidescu Adriana AnaMaria12ORCID,Manta Eduard Mihai3,Vacaru (Boita) Oana Mihaela3,Gruiescu Mihaela4,Hapau Razvan Gabriel56,Baranga Paul Laurentiu7

Affiliation:

1. Department of Statistics and Econometrics, The Bucharest University of Economic Studies, 010552 Bucharest, Romania

2. Department of Education, Training and Labour Market, National Scientific Research Institute for Labour and Social Protection, 010643 Bucharest, Romania

3. Doctoral School of Cybernetics and Statistics, Bucharest University of Economic Studies, 010374 Bucharest, Romania

4. Department of Informatics, Statistics and Mathematics, Romanian-American University, 012101 Bucharest, Romania

5. Doctoral School of Finance, Western University of Timisoara, 300223 Timisoara, Romania

6. The Financial Supervisory Authority, 050092 Bucharest, Romania

7. Doctoral School of Economics II, Bucharest University of Economic Studies, 010374 Bucharest, Romania

Abstract

Biopharmaceutical companies are critical in developing vaccines, treatments, and diagnostics for COVID-19. Thus, understanding the contagion effects of their stock market can have important economic implications, especially in the context of global financial markets. Due to the COVID-19 pandemic, biopharmaceutical companies’ stock markets may have experienced sudden volatility and risk changes, which may have had spillover effects on other sectors and markets. Policymakers can take pre-emptive measures to stabilize financial markets. Analyzing the contagion effects makes it even more relevant to analyze the stock market response of four leading pharmaceutical companies that either developed vaccines against COVID-19 or drugs that help to fight the virus, namely, Pfizer, AbbVie Inc., Sanofi, and Bristol Myers Squibb. The analysis considers two periods, before and during the COVID-19 crisis, and considers the influence of the market volatility and technological market index. In order to capture the contagion effects, DCC-GARCH models have been applied, which estimate time-varying correlation coefficients using a multivariate GARCH framework, allowing for the modeling of time-varying volatility and correlations in financial returns. The results reveal the impact of market volatility on the returns of all four pharmaceutical companies. Additionally, a contagion effect between all four companies, the technological market, and market volatility was observed during the COVID-19 period.

Publisher

MDPI AG

Subject

General Mathematics,Engineering (miscellaneous),Computer Science (miscellaneous)

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