13 Pages Posted: 20 Apr 2011
Date Written: April 18, 2011
Using the traditional event study approach in the context of securities litigation, the determination of the "materiality" of a firm disclosure hinges on the statistical significance of the abnormal share price change (i.e., return) on the disclosure day. To estimate per share damages, the abnormal return is then transformed to an abnormal dollar impact. It is often assumed that if the abnormal return on a disclosure day is statistically significant, so is the abnormal dollar effect. We demonstrate - first analytically and then through an empirical example - that need not be the case. We derive the proper t-statistic if one wishes to determine the statistical significance of an abnormal dollar effect. This has obvious implications for liability and damages in securities litigation matters.
Keywords: 10b-5 damages, materiality, securities litigation, securities damages, event study analysis, t-statistic
JEL Classification: G14, K22, K42
Suggested Citation: Suggested Citation
Saha, Atanu and Ferrell, Allen, Event Study Analysis: Correctly Measuring the Dollar Impact of an Event (April 18, 2011). Harvard Law and Economics Discussion Paper. Available at SSRN: https://ssrn.com/abstract=1814236 or http://dx.doi.org/10.2139/ssrn.1814236