Reaction and Anticipation of Corporate-Related Supreme Court of the United States (SCOTUS) Decisions by the Stock and Option Markets

49 Pages Posted: 27 Jan 2021 Last revised: 19 Dec 2022

See all articles by Yehuda Davis

Yehuda Davis

Yeshiva University - Sy Syms School of Business

Suresh Govindaraj

Rutgers University - Rutgers Business School - Newark and New Brunswick

Kate Suslava

Bucknell University Freeman College of Management

Date Written: August 8, 2022

Abstract

This paper investigates stock and option market reactions to judicial events in the United States Supreme Court (SCOTUS) relating to cases where at least one party involved is a public firm. Using a comprehensive dataset of more than 500 SCOTUS cases from 1948 to 2018, we find that the stock market is unable to anticipate SCOTUS’s actions and reacts significantly to both the grant of certiorari and to the announcement of the final decision. In particular, there is a significant negative stock market reaction to the grant of certiorari for the petitioner and respondent, portending general higher uncertainty ahead, and a positive (negative) stock market reaction to the final decisions for winning (losing) firms. We also find persuasive evidence that the option market can anticipate the final decision as early as the date certiorari is granted, reinforcing the theory that smart money comes early to the option market.

Keywords: abnormal stock returns; implied volatility spread; Supreme Court; petitioner; respondent; writ of certiorari

JEL Classification: K22, K40, D53

Suggested Citation

Davis, Yehuda and Govindaraj, Suresh and Suslava, Kate, Reaction and Anticipation of Corporate-Related Supreme Court of the United States (SCOTUS) Decisions by the Stock and Option Markets (August 8, 2022). Available at SSRN: https://ssrn.com/abstract=3761235 or http://dx.doi.org/10.2139/ssrn.3761235

Yehuda Davis (Contact Author)

Yeshiva University - Sy Syms School of Business ( email )

United States

Suresh Govindaraj

Rutgers University - Rutgers Business School - Newark and New Brunswick ( email )

1 Washington Park
Room #934
Newark, NJ 07102
United States

Kate Suslava

Bucknell University Freeman College of Management ( email )

701 Moore Ave
Lewisburg, PA 18837
United States

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