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    Profitability, Volatility, and Risk in the Biotechnology Sector

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    Author
    Zucarelli, Michael
    Shauffert, Maurice
    Affiliation
    College of Pharmacy, The University of Arizona
    Issue Date
    2010
    Keywords
    Biotechnology Sector
    Biotechnology Industry
    MeSH Subjects
    Biotechnology
    Advisor
    Skrepnek, Grant
    
    Metadata
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    Rights
    Copyright © is held by the author.
    Collection Information
    This item is part of the Pharmacy Student Research Projects collection, made available by the College of Pharmacy and the University Libraries at the University of Arizona. For more information about items in this collection, please contact Jennifer Martin, Librarian and Clinical Instructor, Pharmacy Practice and Science, jenmartin@email.arizona.edu.
    Publisher
    The University of Arizona.
    Abstract
    OBJECTIVES: (1) To characterize the long-term performance of the biotechnology sector and the overall market using a Sharpe Ratio analysis (excess return/volatility; α/SD). The null hypothesis tested in this paper is the generalized Sharpe ratio characteristic of the biotechnology sector is identical to that of the overall market. METHODS: 337 companies were identified using Standard Industry Classification code 2836 (Biological Products, (No Diagnostic Substances)) lists from the Center for Research and Security Prices (CRSP) and S&P CompuStat databases. Market data on equity and return were derived from securities price data from the CRSP database. Market data were used to characterize the following measures: Mean Excess Return, Mean Excess Return minus 1% of top earners (trimmed), Volatility (SD),Sharpe Ratio and 1% Adjustment RESULTS: The study finds the biotech industry earned excess returns of 13.84% over time when compared to the overall market ( 5.10%). However, these returns are highly concentrated: When the top 1% of sector earners are removed from analysis, excess return declines below the risk free rate (return of -0.05%) suggesting significant barriers to risk diversification. CONCLUSIONS: The results show the biotechnology sector experiences higher volatility compared with the overall market, as well as higher excess returns. The results justify a rejection of the null hypothesis – that the generalized Sharpe ratio of the biotechnology sector is identical to that of the overall market
    Description
    Class of 2010 Abstract
    Collections
    Pharmacy Student Research Projects

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