After Halliburton: Event Studies and Their Role in Federal Securities Fraud Litigation

71 Pages Posted: 8 Nov 2016 Last revised: 13 Jan 2018

See all articles by Jill E. Fisch

Jill E. Fisch

University of Pennsylvania Law School - Institute for Law and Economics

Jonah B. Gelbach

University of Pennsylvania Law School

Jonathan Klick

University of Pennsylvania Law School; Erasmus School of Law; PERC - Property and Environment Research Center

Multiple version iconThere are 2 versions of this paper

Date Written: August 1, 2016

Abstract

Event studies have become increasingly important in securities fraud litigation after the Supreme Court’s decision in Halliburton II. Litigants have used event study methodology, which empirically analyzes the relationship between the disclosure of corporate information and the issuer’s stock price, to provide evidence in the evaluation of key elements of federal securities fraud, including materiality, reliance, causation, and damages. As the use of event studies grows and they increasingly serve a gatekeeping function in determining whether litigation will proceed beyond a preliminary stage, it will be critical for courts to use them correctly.

This Article explores an array of considerations related to the use of event studies in securities fraud litigation. It starts by describing the basic function of the event study: to determine whether a highly unusual price movement has occurred and the traditional statistical approach to making that determination. The Article goes on to identify special features of securities fraud litigation that distinguish litigation from the scholarly context in which event studies were developed. The Article highlights the fact that the standard approach can lead to the wrong conclusion and describes the adjustments necessary to address the litigation context. We use the example of six dates in the Halliburton litigation to illustrate these points.

Finally, the Article highlights the limitations of event studies – what they can and cannot prove – and explains how those limitations relate to the legal issues for which they are introduced. These limitations bear upon important normative questions about the role event studies should play in securities fraud litigation.

Suggested Citation

Fisch, Jill E. and Gelbach, Jonah B. and Klick, Jonathan, After Halliburton: Event Studies and Their Role in Federal Securities Fraud Litigation (August 1, 2016). CFS Working Paper, No. 552. Available at SSRN: https://ssrn.com/abstract=2865815 or http://dx.doi.org/10.2139/ssrn.2865815

Jill E. Fisch (Contact Author)

University of Pennsylvania Law School - Institute for Law and Economics ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States
215-746-3454 (Phone)
215-573-2025 (Fax)

Jonah B. Gelbach

University of Pennsylvania Law School ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States

Jonathan Klick

University of Pennsylvania Law School ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States
2157463455 (Phone)

Erasmus School of Law ( email )

3000 DR Rotterdam
Netherlands

PERC - Property and Environment Research Center

2048 Analysis Drive
Suite A
Bozeman, MT 59718
United States

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