![]() For all fraud-on-the-market suits where the plaintiff can establish a misstatement made with scienter, we argue that liability should be imposed where the misstatement’s price impact appears to be at least as great as an inflation threshold chosen to trade off the costs and benefits of adjudicating securities class actions. More often, the answer to that question is better indicated by the price change back at the time of the misstatement. By focusing on the price drop at the time of a corrective disclosure, as courts generally do in fraud-on-the-market suits, they have lost track of the real issue: whether the misstatement inflated the share price by a meaningful amount in the first place. But in these cases, the price drop on the day of the disaster announcement is almost never a reasonable measure of the misstatement’s share price inflation. In an event-driven case, the plaintiff points to a pre-disaster statement that allegedly underplayed the likelihood that the disaster would occur and argues that the disaster announcement was the corrective disclosure. The result suggests ways we can both solve the challenges posed by event-driven litigation and improve fraud-on-the-market jurisprudence more generally. In this Article, we identify the basic logic behind this cause of action and consider what that logic implies as to when liability should and should not be imposed from a social welfare perspective. The growth of event-driven cases thus provides a unique opportunity to reconceptualize the overall system of adjudicating fraud-on-the-market suits more generally. Although these event-driven suits differ in important ways from their more traditional cousins based on the same doctrine, they constitute a kind of stress test for the overall doctrine. The theory behind fraud-on-the-market cases is that when an issuer’s share price has been inflated by a Rule-10b-5-violating misstatement, investors who purchased shares at the inflated price have suffered a compensable injury if they still hold the shares after the inflation is gone. These suits are based on the fraud-on-the-market doctrine, a doctrine that ultimately gives rise to the bulk of the damages paid out in settlements and judgments pursuant to private litigation under the U.S. Summary: Event-driven securities suits-ones that arise after an issuer has experienced some kind of disaster-have become increasingly prevalent in recent years. They find that Cammer Factors and other previous work in securities litigation using daily data and/or ad hoc subjective judgments are unreliable.Įvent-Driven Suits and the Rethinking of Securities Litigation The authors compile a dataset of systematic, independent, and objective characterizations of each ticker-year, ticker-half year, ticker-quarter, and ticker-month, and each year, half year, quarter, and month, 2014 - September 2021, as statistically and economically significant efficient, statistically, and economically significant inefficient, or otherwise. ![]() Therefore, it is imperative to use high-frequency intraday data for event studies and market efficiency work, in the case of every securities litigation and valuation. stocks for 2014 - September 2021, using intraday data from TAQ, TRACE, I/B/E/S, and Capital IQ, using daily data from CRSP, Compustat, CRSP-Compustat Merged Database, and FRED, they find that all reaction, overreaction, correction, overcorrection, bounce back, etc., for equities, are systemically all out of the system within two hours after a potentially material event. ![]() Summary: The authors provide an overview of the legal framework for the analysis of market efficiency in securities class actions. It is Imperative to Perform Event Studies Only With High-Frequency Intraday Data for Securities Litigations and Valuations
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