Litigation Finance Investing: Alternative Investment Returns in the Presence of Information Asymmetry

25 Pages Posted: 1 Jun 2021

See all articles by Michael McDonald

Michael McDonald

Fairfield University - Charles F. Dolan School of Business

Thomas J. Healey

Harvard University - Harvard Kennedy School (HKS)

Date Written: May 28, 2021

Abstract

Litigation finance is a rapidly growing niche asset class focused on debt and equity investments in litigation claims and law firms. We find that in-sample returns in the space have been in excess of 20% annually with limited correlation to other investment areas. This apparent excess return may be due to information asymmetry and barriers to entry in the space. Our findings highlight the opportunities and risks for investors in this nascent asset classes and suggest such excess returns are due in part to limits to the speed with which efficient markets take hold.

Keywords: Litigation finance, litigation funding, legal funding, alternative investments, asset pricing, hedge funds

JEL Classification: G10; G12

Suggested Citation

McDonald, Michael and Healey, Thomas J., Litigation Finance Investing: Alternative Investment Returns in the Presence of Information Asymmetry (May 28, 2021). Available at SSRN: https://ssrn.com/abstract=3855576 or http://dx.doi.org/10.2139/ssrn.3855576

Michael McDonald (Contact Author)

Fairfield University - Charles F. Dolan School of Business ( email )

N. Benson Road
Fairfield, CT 06824
United States

Thomas J. Healey

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

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