AB Pharmaceutical announced FDA approval for a new drug on October 12. Uptown Dr
ID: 448266 • Letter: A
Question
AB Pharmaceutical announced FDA approval for a new drug on October 12. Uptown Drug Co. announced FDA approval for its new drug on October 14. No other information was released that would affect returns over this time period. What is the combined cumulative abnormal return for the 5 day period commencing 2 days prior to the FDA approval announcement date? Use the following data to answer this question. No trading occurred on October 15 or 16. Graph and interpret the results. Do your results support market efficiencyExplanation / Answer
Ans AB Pharma Period for the cumulative return will be from 10/10 to 10/15
Uptown Drug co period for the cumulative return will be from 10/12 to 10/18
Calculation
Ans AB Pharma Period for the cumulative return will be from 10/10 to 10/15
Uptown Drug co period for the cumulative return will be from 10/12 to 10/18
Calculation
Date Return for AB pharma Return for Uptown drug co 10-10 0.2 10-11 -0.1 10-12 0.7 0.3 10-13 -0.2 0.2 10-14 -0.3 0.2 10-17 0.1 10-18 -0.4 Total 0.3 0.4 Cumulative total 0.06 0.08 Cumulative abnormal return for 5 days 0.1