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http://ssrn.com/abstract=1017334
 
 

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Inflation and Damages in a Post-Dura World


David Tabak


National Economic Research Associates, Inc. (NERA)

September 15, 2007


Abstract:     
There are three commonly used methodologies for modeling inflation in securities fraud cases: the "index method," the "constant percentage method," and the "constant dollar method." I have previously argued that the index and constant percentage methods, if applied without adjustment as the measure of damages under the out-of-pocket rule, generally result in an overstatement of damages under certain interpretations of loss causation. The Supreme Court's ruling in Dura did in fact endorse an interpretation of loss causation that requires that an adjustment be made to the index and constant percentage methods in the process of going from inflation to damages. The need for an adjustment has been addressed in various ways by experts and the courts, most recently with a ruling finding that the index method (without adjustment) "collides directly with loss causation doctrine" and that the constant percentage method (with what we argue is an inadequate adjustment) creates damages with properties for which even the expert proffering the methodology could provide "no 'economic or logical reason'" and also impermissibly provides investors with a "partial downside insurance policy." Here we address the type of adjustment to certain inflation models necessary to comport with the loss causation doctrine in Dura in a consistent and logical fashion.

Number of Pages in PDF File: 25

Keywords: Damages, Securities

JEL Classification: K22

working papers series





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Date posted: September 28, 2007  

Suggested Citation

Tabak, David, Inflation and Damages in a Post-Dura World (September 15, 2007). Available at SSRN: http://ssrn.com/abstract=1017334 or http://dx.doi.org/10.2139/ssrn.1017334

Contact Information

David Tabak (Contact Author)
National Economic Research Associates, Inc. (NERA) ( email )
1166 Avenue of the Americas, 34th Floor
New York, NY 10036
United States
212-345-2176 (Phone)
212-345-4664 (Fax)
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