Predicting Securities Fraud Settlements and Amounts: A Hierarchical Bayesian Model of Federal Securities Class Action Lawsuits

29 Pages Posted: 25 Jul 2012  

Blakeley B. McShane

Northwestern University - Kellogg School of Management

Oliver P. Watson

affiliation not provided to SSRN

Tom Baker

University of Pennsylvania Law School

Sean J. Griffith

Fordham University School of Law

Multiple version iconThere are 2 versions of this paper

Date Written: September 2012

Abstract

This article develops models that predict the incidence and amount of settlements for federal class action securities fraud litigation in the post‐PLSRA period. We build hierarchical Bayesian models using data that come principally from Riskmetrics and identify several important predictors of settlement incidence (e.g., the number of different types of securities associated with a case, the company return during the class period) and settlement amount (e.g., market capitalization, measures of newsworthiness). Our models also allow us to estimate how the circuit court a case is filed in as well as the industry of the plaintiff firm associate with settlement outcomes. Finally, they allow us to accurately assess the variance of individual case outcomes revealing substantial amounts of heterogeneity in variance across cases.

Suggested Citation

McShane, Blakeley B. and Watson, Oliver P. and Baker, Tom and Griffith, Sean J., Predicting Securities Fraud Settlements and Amounts: A Hierarchical Bayesian Model of Federal Securities Class Action Lawsuits (September 2012). Journal of Empirical Legal Studies, Vol. 9, Issue 3, pp. 482-510, 2012. Available at SSRN: https://ssrn.com/abstract=2116881 or http://dx.doi.org/10.1111/j.1740-1461.2012.01260.x

Blakeley B. McShane (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Oliver P. Watson

affiliation not provided to SSRN ( email )

Tom Baker

University of Pennsylvania Law School ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States
215-746-2185 (Phone)

HOME PAGE: http://www.law.upenn.edu/cf/faculty/thbaker/

Sean J. Griffith

Fordham University School of Law ( email )

150 West 62nd Street
New York, NY 10023
United States

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