Forward-Casting 10b-5 Damages: A Comparison to Other Methods

Harvard Law and Economics Discussion Paper

Harvard University John M. Olin Center for Law, Economics and Business Discussion Paper

35 Pages Posted: 19 Apr 2011  

Allen Ferrell

Harvard Law School; European Corporate Governance Institute (ECGI)

Atanu Saha

Compass Lexecon

Date Written: April 17, 2011

Abstract

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.

Keywords: 10b-5 damages, securities damages, damages, securities lititgation

JEL Classification: G14, K22, K42

Suggested Citation

Ferrell, Allen and Saha, Atanu, Forward-Casting 10b-5 Damages: A Comparison to Other Methods (April 17, 2011). Harvard Law and Economics Discussion Paper; Harvard University John M. Olin Center for Law, Economics and Business Discussion Paper. Available at SSRN: https://ssrn.com/abstract=1811068 or http://dx.doi.org/10.2139/ssrn.1811068

Allen Ferrell (Contact Author)

Harvard Law School ( email )

Griswold 303 1525 Massachusetts Avenue
Cambridge, MA 02138
United States
(617) 495-8961 (Phone)
(617) 495-1110 (Fax)

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Atanu Saha

Compass Lexecon ( email )

New York, NY
United States

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