Forward-Casting 10b-5 Damages: A Comparison to Other Methods
Harvard Law School; European Corporate Governance Institute (ECGI)
April 17, 2011
Harvard Law and Economics Discussion Paper
Harvard University John M. Olin Center for Law, Economics and Business Discussion Paper
We propose in this paper the forward-casting method for estimating 10b-5 damages. We argue that this method compares favorably to two commonly used 10b-5 damage methods: constant dollar back-casting and the allocation method. Most importantly, both constant dollar back-casting and the allocation method, in contrast to forward-casting, fail to incorporate market expectations in estimating the stock price that would have obtained absent the alleged fraud. In the course of our discussion, we demonstrate how each one of these three methods work in practice using facts and data from an actual case. The choice of a damage method, as we document, can make a dramatic difference in estimated damages.
Number of Pages in PDF File: 35
Keywords: 10b-5 damages, securities damages, damages, securities lititgation
JEL Classification: G14, K22, K42
Date posted: April 19, 2011
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