Security price behavior around regulatory decisions

This study examines investing trading strategies to outcomes of FDA advisory committees and subsequent decisions by the FDA.

 

In this study, we seek to explore how security prices behave to outcomes of FDA advisory committees and to the subsequent approval or rejection by the FDA during 2000 to 2017. Our in-depth analysis is based on publicly accessible materials, including meeting minutes, posted on the FDA’s website.

 

How does FDA’s approval decisions correlate with the recommendations of its advisory committees, i.e. what is the sensitivity and specificity of advisory committee recommendations as a test for FDA approval? Does an investment into a group of positive recommendations by the advisory committees and short-selling to a group of negative recommendations generate excessive returns? Is there a difference when there is a clear ‘yes’ or ‘no’ vote (i.e. the strength of the endorsement by the committee)?