Emerging Issues in Evaluating Market Efficiency: Part 1 - Serial Correlation

Abstract

The presence of serial correlation, properly analyzed, does not necessarily impact a security's ability to appropriately assimilate new information into its price. As long as information, when it is released, is incorporated into the price of a security, then misrepresentations and omissions, too, are incorporated. As a result, investors who relied on the integrity of the security’s price would necessarily have relied on the misrepresentations and omissions, satisfying the reliance condition for class certification.

Keywords: securities litigation, market efficiency, serial correlation, fraud-on-the-market

JEL Classification: K22, G14