Inflation Methodologies in Securities Fraud Cases: Theory and Practice

NERA Working Paper

21 Pages Posted: 19 Jun 2002

See all articles by David Tabak

David Tabak

National Economic Research Associates, Inc. (NERA)

Chudozie Okongwu

National Economic Research Associates Inc. (NERA)

Date Written: July 2002

Abstract

There are several basic methodologies for measuring the true value in a stock before a corrective disclosure of previously omitted or misstated information. Among the most common are the constant dollar inflation, constant percentage inflation, and constant true value methodologies. In this paper, we consider the theoretical justifications for each methodology given different types of allegations. We further examine the interaction of the choice of inflation methodology with the measurement of damages given the loss causation requirements of the securities laws. Finally, we examine settlements of shareholder class actions and document that an extremely large (and likely unreasonable) share of those settlements use the constant true value methodology.

Keywords: securities fraud, shareholder class action, inflation, damages

JEL Classification: K22, K00, K40, G00

Suggested Citation

Tabak, David and Okongwu, Chudozie, Inflation Methodologies in Securities Fraud Cases: Theory and Practice (July 2002). NERA Working Paper, Available at SSRN: https://ssrn.com/abstract=315919 or http://dx.doi.org/10.2139/ssrn.315919

David Tabak (Contact Author)

National Economic Research Associates, Inc. (NERA) ( email )

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Chudozie Okongwu

National Economic Research Associates Inc. (NERA) ( email )

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New York, NY 10036
United States
212-345-5003 (Phone)

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