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Bias-Corrected Estimation of Price Impact in Securities Litigation

25 Pages Posted: 24 Jul 2017 Last revised: 29 Sep 2017

Taylor Dove

University of Utah - David Eccles School of Business

Davidson Heath

University of Utah David Eccles School of Business

J.B. Heaton

Bartlit Beck Herman Palenchar & Scott LLP

Date Written: September 27, 2017

Abstract

Securities litigants use single-firm event studies to detect the impact of an event such as a corrective disclosure on the price of a traded security. Because a study of a single event cannot average away confounding effects, statistically significant estimates of price impact are biased. This means that price impacts in single-firm event studies are systematically overestimated, a problem that carries over into damages calculations and results in securities litigation being settled or decided for excessive damages. We quantify and examine the bias using the empirical distribution of daily stock returns, and develop bias-corrected estimators of price impacts for single-event studies.

Suggested Citation

Dove, Taylor and Heath, Davidson and Heaton, J.B., Bias-Corrected Estimation of Price Impact in Securities Litigation (September 27, 2017). Available at SSRN: https://ssrn.com/abstract=3005878

Taylor Dove

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

Davidson Heath (Contact Author)

University of Utah David Eccles School of Business ( email )

Salt Lake City, UT 84112
United States

J.B. Heaton

Bartlit Beck Herman Palenchar & Scott LLP ( email )

Courthouse Place
54 West Hubbard Street
Chicago, IL 60610
United States
312-494-4425 (Phone)
312-494-4440 (Fax)

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