Class of 2010 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
| Identifer | oai:union.ndltd.org:arizona.edu/oai:arizona.openrepository.com:10150/623904 |
| Date | January 2010 |
| Creators | Zucarelli, Michael, Shauffert, Maurice |
| Contributors | Skrepnek, Grant, College of Pharmacy, The University of Arizona |
| Publisher | The University of Arizona. |
| Source Sets | University of Arizona |
| Language | en_US |
| Detected Language | English |
| Type | text, Electronic Report |
| Rights | Copyright © is held by the author. |
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