When Do Investors Know? Securities Class Action Lawsuits, Short Selling, and Pre-filing News Releases
49 Pages Posted: 29 Jun 2021 Last revised: 30 Jan 2023
Date Written: January 29, 2023
Prior literature on securities-class-action lawsuits has treated the filing day as when the event became public, for evaluating anticipatory shorting and abnormal negative returns. However, over our 2009-2019 sample, we find that over half of the lawsuits have a publicly announced law-firm investigation, prior to the filing. Strikingly, we find the average cumulative abnormal return over the 5-day pre-filing window is about -6.1\ across all lawsuits (similar to prior studies) but only about -2.0% when excluding lawsuits with a close-by investigation announcement. Our findings substantially weaken prior anticipatory conclusions. Additional findings suggest short sellers are skilled at analyzing public information.
Keywords: Short selling, informed trading, securities class-action lawsuits
JEL Classification: G14, G12
Suggested Citation: Suggested Citation