Resumo de Contagious Speculation And A Cure For Cancer: A Nonevent That Made Stock Prices Soar(6)

Table IIDaily Returns, Excess Returns, Trading Volume, and Relative Trading Volume for Bristol-Myers Squibb (BMY) Excess return is the return of BMY in excess of that of the NYSE. Fraction of 1996 and 1997 excess returns higher is the fraction of the 507 1996 and 1997 daily excess returns that were higher than BMY on that day. Fraction of 1996-1997 volume ratios higher is the fraction of the 507 1996 and 1997 daily (BNIY volume)/(NYSE volume) ratios that were higher than the similar ratio on that day.
news about ENMD came out-November 28, 1997, November 12, 1998, and February 10, 1999-and argue that both the high return and high volume of May 4 suggest some stock market reaction to the Tunes' no-new-news article. Although BMY's return on that day is miniscule compared with that of ENMD and a few other biotech stocks, it translates to an increase in market capitalization that dwarfs that of those biotech stocks.That news about a breakthrough in cancer research affects not only the stock of a firm that has direct commercialization rights to the development is not surprising; the market may recognize potential spillover effects and surmise that other firms may benefit from the innovation. Moreover, the market may interpret the news as good for other firms because it may suggest that the research and development conducted by these other firms is closer to commercial fruition. However, the news did not break on May 4, 1998, but on November 27, 1997. And the people with the expertise to evaluate the spillover effects closely follow the news within the scientific community, probably read Nature, and pay attention to the coverage of biotechnology in the Times even when the relevant material appears well inside the newspaper.The motivation and identity of the people who traded the seven stocks so aggressively on May 4 is puzzling. If they are experts on the fundamental aspects of biotechnology, they could and should have traded five months earlier. If they are stock market experts with no special understanding of biotechnology, it is unclear how they picked these particular seven stocks. Perhaps they speculated on noise trader behavior, but why with these stocks?IV Concluding RemarksThe circumstances surrounding ENMD are unusually clean, affording a crisp examination of the relevance of the efficient market hypothesis to the pricing of ENMD stock. On November 27, 1997, news was made public, and on May 3, 1998, FNMD enjoyed tremendous publicity that looked like news, but commentary on this news quickly revealed that it was not new at all.The very prominent and exceptionally optimistic Sunday New York Times article of May 3, 1998, enables us to document a very strong and permanent rise of ENMD's stock price that was caused by no new news. And the optimism was contagious, as other biotechnology stocks reacted similarly in direction, if not in magnitude. Moreover, these market reactions contrast with those that took place five months earlier and seven months later when new news came to light; ENMD's reaction was much milder and contagion seemed minimal, if it took place at all.The cleanliness of the circumstances exploited in this study is rare. But the evidence is suggestive for our general understanding of the determinants of security prices. Prices probably move on no new news, and the movements may be concentrated in stocks that have some things in common, but these need not be economic fundamentals.The possible arbitrariness of stock prices implies that capital markets may allocate funds in a somewhat arbitrary fashion. For instance, ENMD would have raised capital on very different terms before and after the May 3, 1998, publication of the Tames article.To the skeptical reader we offer the following hypothetical question: What would have been the price of ENMD in late May 1998 if the editor of the Times had chosen to kill the May 3 story?REFERENCESAbelson, Reed, 1998, Reality punctures Entremed's bubble, New York Timay 10, 3:6 Boehm, Thomas, Judah Folkman, Timothy Browder, and Michael S. O'Heilly, 1997, Antiangiogemc therapy of experimental cancer does not induce aquired drug resistance, Nature 390,404-407Cook, Robert, 1997, Starving tumors succeeds, Newsday, November 27, A60.Gawande, Atul, 1998, Mouse hunt, New Yorker, May 18, 5-6.Kerbel, Robert S., 1997, A cancer therapy resistant to resistance, Nature 390, 335-336.King, Ralph T,1998, Novel cancer approach from noted scientist hits stumbling block, Wall Street Journal, November 12, AlKolata, Gina, 1998, Hope in the lab: A special report; A cautious awe greets drugs that eradicate tumors in mice, New York Times, May 3, 1:1Wade, Nicholas, 1997, Tests on mice block defense by cancer, New York Times, November 27 A28.

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