Systematic risk in the biopharmaceutical sector: a multiscale approach

Gazi Uddin, Muhammad Yahya (), Stelios Bekiros, Raanadeva Jayasekera () and Gerhard Kling ()
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Muhammad Yahya: Inland Norway University of Applied Sciences
Raanadeva Jayasekera: Trinity Business School
Gerhard Kling: University of Aberdeen

Annals of Operations Research, 2023, vol. 330, issue 1, No 9, 243-266

Abstract: Abstract It is well documented that the biopharmaceutical sector has exhibited weak financial returns, contributing to underinvestment. Innovations in the industry carry high risks; however, an analysis of systematic risk and return compared to other asset classes is missing. This paper investigates the time–frequency interconnectedness between stocks in the biotech sector and ten asset classes using daily cross-country data from 1995 to 2019. We capture investors' heterogeneous investment horizons by decomposing time series according to frequencies. Using a maximal overlap discrete wavelet transform (MODWT) and a dynamic conditional correlation (DCC)-Student-t copula, diversification potentials are revealed, helping investors to reap the benefits of investing in biotech. Our findings indicate that the underlying assets exhibit nonlinear asymmetric behavior that strengthens during periods of turmoil.

Keywords: OR in medicine; Biotech; Time-varying copulas; Wavelets; Risk management (search for similar items in EconPapers)
JEL-codes: C32 C44 G1 G10 G15 L65 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s10479-021-04402-8

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