How Do Investors React to Investment-Opportunity Shock? Evidence from the COVID-19 Pandemic and Taiwan Bio-Tech Firms

While the stock market crashed in the first quarter after the outbreak of COVID-19, this paper finds that bio-tech firms and their investors could take advantage of the COVID-19 investment opportunity and earn positive abnormal returns. Bio-tech firms earn abnormal returns of 1.63% per day—which can be translated into average capital gains of about 86.7 million NT dollars per day— around the event day on which the WHO declared COVID-19 a global emergency. Positive returns continue after the event day. Moreover, small firms and firms that enjoy greater patent originality and receiving government R&D subsidies earn higher abnormal returns.