It is Imperative to Perform Event Studies Only with High-Frequency Intraday Data for Securities Litigations and Valuations

Abstract

We provide an overview of the legal framework for the analysis of market efficiency in securities class actions. Analyzing all publicly traded U.S. stocks for 2014-2021, using intraday data from TAQ, TRACE, I/B/E/S, and Capital IQ, using daily data from CRSP, Compustat, CRSP-Compustat Merged Database, and FRED, we find that all reaction, overreaction, correction, overcorrection, bounceback, etc., for equities, are systemically all out of the system within two hours after a potentially material event. Therefore, it is imperative to use high-frequency intraday data for event studies and market efficiency work, in the case of every securities litigation and valuation. We compile a dataset of systematic, independent, and objective characterizations of each ticker-year, ticker-halfyear, ticker-quarter, and ticker-month, and each year, halfyear, quarter, and month, 2014-2021, as statistically and economically significant efficient, statistically and economically significant inefficient, or otherwise. We find that Cammer Factors and other previous work in securities litigation using daily data and/or ad hoc subjective judgments are unreliable.

Keywords: Market efficiency; Intraday data; Event studies; Earnings announcements; Key developments; Securities class actions.

JEL Classification: K22; G14; G18