Opioid Prescription Rates and Asset Prices — Assessment of Causal Effects

Abstract

We explore the link between county-level opioid prescription rates and asset prices, specifically, stock returns of firms headquartered in that county, as well as real estate prices. In order to establish the causal effects of opioid prescription rates on firm stock returns, we first apply an instrumental variable (IV) regression approach and use the number of clandestine drug laboratories in a county to be the instrumental variable. The results provide robust evidence that county-level opioid prescription rates have a negative causal effect on the equity returns of firms headquartered in that county. And the results are even more pronounced for counties wherein racial minorities make up more than 40% of the county population. Furthermore, we analyze the effect of Medical Board of California's 2014 regulatory revision aimed at reducing controlled substance overdose due to prescriptions and implement a difference-in-differences (DiD) estimation. The DiD estimation results show that this policy change has a positive dynamic effect on Californian firms' equity returns. We also find the opioid prescription reduction assistance program provided by California Health Care Foundation (CHCF) to certain counties in California helps to raise the median prices of existing single-family homes in those counties by $28,678 on average.

Keywords: Urban Economics, Stock Return Predictability, Health Economics and Economic Development, Opioid Prescription Rate, Real Estate Prices, Headquarter Location

JEL Classification: G12, R30, I15