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Market Efficiency and Securities Fraud Litigation

Roland Eisenhuth ^a (American Property Casualty Insurance Association, USA)

David Marshall ^b (Epsilon Economics, USA)

The Law and Economics of Privacy, Personal Data, Artificial Intelligence, and Incomplete Monitoring

ISBN: 978-1-80262-002-3, eISBN: 978-1-80262-001-6

Publication date: 22 March 2022

Abstract

The economic doctrine of market efficiency plays an essential role in securities fraud litigation. In lawsuits alleging violations of SEC Rule 10b-5, the plaintiffs typically must argue that the market for the relevant security is efficient, and therefore that the “fraud on the market” doctrine applies. However, the term “market efficiency” is often applied imprecisely. In this chapter, we discuss properties of efficient markets that have been proposed in academic research, legal scholarship, and case law. We explore what must be assumed about capital markets for each of these properties to hold. We then ask how, in practice, each property could be rebutted.

Keywords

Acknowledgements

Acknowledgment

We thank Lauren Ru for her help in preparing the manuscript, and we acknowledge Rick Conroy, Matt Gunden, Wenqing Li, and an anonymous referee for valuable suggestions. All errors remain the responsibility of the authors.

Citation

Eisenhuth, R. and Marshall, D. (2022), "Market Efficiency and Securities Fraud Litigation", Langenfeld, J., Fagan, F. and Clark, S. (Ed.) The Law and Economics of Privacy, Personal Data, Artificial Intelligence, and Incomplete Monitoring (Research in Law and Economics, Vol. 30), Emerald Publishing Limited, Leeds, pp. 83-107. https://doi.org/10.1108/S0193-589520220000030008

Publisher

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Emerald Publishing Limited