How the FDA Moves Markets: An Exploration into the Intraday Return and Volatility Reactions of Biotech Stocks to FDA Announcements

Abstract

This thesis explores how financial markets respond to U.S. Food and Drug Administration (FDA) regulatory announcements by analyzing intraday abnormal returns and volatility for publicly traded biotechnology firms from 2010 to 2024. While existing literature primarily relies on daily data, this study uses minute-level data to capture more nuanced dynamics of market reactions to FDA approval and Complete Response Letter (CRL) announcements. Event datasets are constructed from RavenPack press releases and aligned with WRDS TAQ intraday data to form panel datasets used in analysis. Within a structural break regression framework, the results show limited evidence of significant abnormal returns but reveal increases in volatility, particularly following CRL announcements. These findings suggest that FDA announcements do not provide clear directional intraday price signals but are associated with increases in volatility that are immediate and often persistent.