Securities litigation without the efficient market hypothesis

June 29, 2014

The Supreme Court in the US has just made a ruling that corporate misstatements is perhaps not so important if market prices are already imperfect. According to the NYTimes,

The court used that distinction to make an important change in the class-action arena. From now on, companies facing class actions can try to show at an early stage that even if they’ve made misstatements, market prices were not affected.

In other words, the ruling allows “companies to raise the issue that a stock wasn’t impacted by the fraudulent statements at the class certification stage.

The argument, which appeals to the fallibility of the the efficient market hypothesis, was introduced by Halliberton  in a case involving its asbestos liabilities.

The idea that changes in economic theory can impact on class action law is super interesting, but from a legal perspective the ruling is just tinkering (see here).



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