The Affordable Care Act and the Risk and Return on Hospital Stocks
Abstract
We empirically examine the effect of the Affordable Care Act on the risk and return of publically traded hospital stocks. Our methodology uses the single-index model of stock excess returns amended to control for events related to the passage and implementation of health-care reform. We test for changes in ex-post alpha, beta, and firm-specific risk. We find a reversal effect with alphas at first decreasing upon the bill’s passage, then increasing upon the 2012 Supreme Court decision. We find a similar reversal effect for market risk, with betas, at first increasing then decreasing. Overall we find ACA produced positive alphas with marginal statistical significance and less diverse betas mirroring that of the market. Finally, we find health-care reform had no significant effect on firm-specific risk.
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