Price Impact, Materiality, and Halliburton II

Abstract

The Supreme Court decision in Halliburton Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398 (2014), reaffirmed the availability of the fraud-on-the-market presumption of “reliance” for purposes of a Rule 10b-5 class certification. At the same time, the Court held that defendants could rebut the presumption if they could provide “direct evidence” that the alleged misrepresentations did not in fact impact the price of the security (i.e., a lack of price impact). In this Article we discuss various issues that have arisen in lower court rulings that have addressed Halliburton price impact arguments. These issues include the relationship between materiality and price impact, the distinction between hypothetical versus actual changes in the total mix of information made available to the market, the use of event studies, and some lower courts’ refusal to consider certain types of economic evidence in the context of price impact arguments.

Keywords: securities class action, Halliburton, price impact, materiality

JEL Classification: G02, G14, G30, K22