Law on the Market? Evaluating the Securities Market Impact of Supreme Court Decisions

29 Pages Posted: 24 Aug 2015 Last revised: 14 Aug 2016

Daniel Martin Katz

Illinois Tech - Chicago Kent College of Law

Michael James Bommarito II

LexPredict, LLC; Bommarito Consulting, LLC; Chicago-Kent College of Law - Illinois Institute of Technology; Michigan State College of Law

Tyler Soellinger

Michigan State University - College of Law

James Ming Chen

Michigan State University - College of Law

Date Written: August 24, 2015

Abstract

Do judicial decisions affect the securities markets in discernible and perhaps predictable ways? In other words, is there “law on the market” (LOTM)? This is a question that has been raised by commentators, but answered by very few in a systematic and financially rigorous manner. Using intraday data and a multiday event window, this large scale event study seeks to determine the existence, frequency and magnitude of equity market impacts flowing from Supreme Court decisions.

We demonstrate that, while certainly not present in every case, "law on the market" events are fairly common. Across all cases decided by the Supreme Court of the United States between the 1999-2013 terms, we identify 79 cases where the share price of one or more publicly traded company moved in direct response to a Supreme Court decision. In the aggregate, over fifteen years, Supreme Court decisions were responsible for more than 140 billion dollars in absolute changes in wealth. Our analysis not only contributes to our understanding of the political economy of judicial decision making, but also links to the broader set of research exploring the performance in financial markets using event study methods.

We conclude by exploring the informational efficiency of law as a market by highlighting the speed at which information from Supreme Court decisions is assimilated by the market. Relatively speaking, LOTM events have historically exhibited slow rates of information incorporation for affected securities. This implies a market ripe for arbitrage where an event-based trading strategy could be successful.

Keywords: Supreme Court, securities markets, arbitrage, event based trading, event study, impact of judiciary

JEL Classification: G20, G14, G18, K10, K40

Suggested Citation

Katz, Daniel Martin and Bommarito, Michael James and Soellinger, Tyler and Chen, James Ming, Law on the Market? Evaluating the Securities Market Impact of Supreme Court Decisions (August 24, 2015). Available at SSRN: https://ssrn.com/abstract=2649726 or http://dx.doi.org/10.2139/ssrn.2649726

Daniel Martin Katz (Contact Author)

Illinois Tech - Chicago Kent College of Law ( email )

565 W. Adams St.
Chicago, IL 60661-3691
United States

HOME PAGE: http://www.danielmartinkatz.com/

Michael James Bommarito II

LexPredict, LLC ( email )

MI
United States

HOME PAGE: http://lexpredict.com

Bommarito Consulting, LLC ( email )

MI 48098
United States

HOME PAGE: http://bommaritollc.com

Chicago-Kent College of Law - Illinois Institute of Technology ( email )

565 W. Adams St.
Chicago, IL 60661-3691
United States

Michigan State College of Law ( email )

318 Law College Building
East Lansing, MI 48824-1300
United States

Tyler Soellinger

Michigan State University - College of Law ( email )

318 Law College Building
East Lansing, MI 48824-1300
United States

James Ming Chen

Michigan State University - College of Law ( email )

318 Law College Building
East Lansing, MI 48824-1300
United States

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