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

See all articles by Chris T. Stivers

Chris T. Stivers

University of Louisville

Licheng Sun

Old Dominion University

Sounak Saha

Old Dominion University

Date Written: January 29, 2023

Abstract

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

Stivers, Chris T. and Sun, Licheng and Saha, Sounak, When Do Investors Know? Securities Class Action Lawsuits, Short Selling, and Pre-filing News Releases (January 29, 2023). Available at SSRN: https://ssrn.com/abstract=3868949 or http://dx.doi.org/10.2139/ssrn.3868949

Chris T. Stivers (Contact Author)

University of Louisville ( email )

Finance Dept., College of Business
University of Louisville
Louisville, KY 40292
United States
502-852-4829 (Phone)

Licheng Sun

Old Dominion University ( email )

Strome College of Business
Department of Finance
Norfolk, VA 23529-0222
United States

Sounak Saha

Old Dominion University ( email )

Norfolk, VA 23529-0222
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
77
Abstract Views
320
Rank
464,030
PlumX Metrics