Dangerous Infectious Diseases: Bad News for Main Street, Good News for Wall Street?

Journal of Financial Markets, Vol. 35, pp. 84-103

Michael Donadelli,
Renatas Kizys,
Max Riedel
Research Area:
Financial Markets
Sep 2017
WHO alerts, investor sentiment, pharmaceutical industry, trading strategies

We examine whether investor mood, driven by World Health Organization (WHO) alerts and media news on dangerous infectious diseases, is priced in pharmaceutical companies' stocks in the United States. We argue that disease-related news (DRNs) should not trigger rational trading. We find that DRNs have a positive and significant sentiment effect among investors (on Wall Street). The effect is stronger (weaker) for small (large) companies, who are less (more) likely to engage in the development of new vaccines. A potential negative investor climate (on Main Street) – induced by disease-related fear – does not alter the positive sentiment effect.

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