R&D investments and stock return volatility : A study on the biotechnological and pharmaceutical industry in Europe.

This study investigates the relationship between R&D investment intensity and stock return volatility in the European pharmaceutical and biotechnological industry. Using panel data, the analysis explores the impact of R&D investments on both total stock return volatility and idiosyncratic volatility. The sample comprises 206 publicly listed pharmaceutical and biotechnological firms from 2015 to 2021, with a specific focus on R&D investments related to COVID-19 during the years 2020 and 2021. The results demonstrate no significant relationship between R&D investment intensity and idiosyncratic risk. In contrast, a negative association is observed between R&D investment intensity and total stock return volatility. However, it is noted that firms with higher R&D investment intensity experienced increased volatility in their total stock returns specifically during the COVID-19 pandemic. The results of this study suggest that pharmaceutical and biotechnological firms can potentially decrease the level of volatility in their stock returns by investing in R&D activities.